For those that believe the illusion of economic acceleration could help the cause, media spin and double seasonally adjusted GDP reporting will not help. The reality of a lusterless U.S. economy is far too great. The manufacturing, mining, and utilities that collectively comprise the industrial sector recently registered its weakest year-over-year growth in a half-decade. Wholesale sales have dropped steadily over the past four years. Exporting on a strong dollar has been difficult for those multi-nationals that operate in Asia and Europe. Wage growth has been stuck in and around 2% since the end of the Great Recession in 2009. The workforce participation rate – a measure of actual employment – is as poor as it had been in the recession-weary late 70s. And homeownership at 63.4% is the lowest that it has been since 1967.
What about the consumer? Aren’t people feeling wealthier? I suppose this depends upon the people you ask. The Conference Board’s US Consumer Confidence was about as discouraging a data point as anyone has seen lately. Consumer expectations plummeted from 92.8 to 79.9 – the lowest reading since February 2014. And Gallup’s reading last week wasn’t much better; that is, for whatever reason, Americans believe the economy is getting worse.
As long as the Federal Reserve maintains its plan to raise the cost of borrowing, and as long as the U.S. dollar rises alongside those expectations, the broader market is likely to remain range-bound. You’d have to hold the horses that have been winning, like iShares S&P 100 (OEF) and SPDR Select Health Care (XLV). Yet you wouldn’t necessarily want to add to your overall equity position.
You might also want to avoid areas of the market that are weakening in the face of higher borrowing costs and a higher greenback. Industrials via Sector Select Industrials (XLI) have gone nowhere in the nine months since QE3 officially ended.
