Additionally, the implied probability of 25 basis point rate hike through December rose from 31.5% to 45%.The September meetings of the Federal Open Market Committee, the Bank of Japan, and the European Central Bank will impact monetary policy expectations for the remainder of 2016. Collectively central bank balance sheets, as shown in Figure 5, continue to expand. Without earnings growth, and equity investors relying on multiple expansion, any change to monetary policy could have significant impact.
Figure 5 – CENTRAL BANK BALANCE SHEETS
SUMMARY
August was a fairly quiet month, though possibly the calm before the storm of September’s central bank policy meetings. A large percentage of S&P 500 firms beat earnings estimates, yet mixed signals from declining earnings growth creates apprehension as the equity market has reached all-time highs. Heading into September we expect the market to focus on the scope and effect of monetary policy.
This article was written by Innealta Capital, a participant in the ETF Strategist Channel.
IMPORTANT INFORMATION
1. Data from FactSet Research Systems Inc., 8.26.2016
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The Russell 3000 Index measures the performance of 3,000 publicly held US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The S&P 500 Index (Large Cap Equity) measures the performance of the large capitalization sector of the U.S. equity market and is considered one of the best representations of the domestic economy.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
Pounds per USD denotes the amount of GBPs that 1 USD can buy. The iBoxx USD Liquid Investment Grade Index is an index composed of U.S. dollar-denominated, investment-grade corporate bonds. The Dow Jones U.S. Select REIT Index intends to measure the performance of publicly traded REITs and REIT-like securities. US Benchmark Bond 2 year refers to the FactSet total return index of owning 2-year U.S. Treasuries. The iBoxx USD Liquid High Yield Index is an index composed of U.S. dollar-denominated, investment-grade corporate bonds. The MSCI AC Asia ex Japan Index captures large and mid cap representation across 2 of 3 Developed Markets countries (excluding Japan) and 8 Emerging Markets countries in Asia. U.S. benchmark bond 30 year refers to the FactSet total return index of owning 30 year U.S. treasuries. US benchmark bond 10 year refers to the FactSet total return index of owning 10 year U.S. treasuries. US benchmark bond 5 year refers to the FactSet total return index of owning 5 year U.S. treasuries. Yen per USD denotes the amount of Japanese yen that 1 U.S. dollar can purchase. NZ$ per USD denotes the amount of New Zealand dollars that 1 U.S. dollar can purchase. Eurostoxx 50 market capitalization weighted index of the leading 50 stocks covering Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. Japan Nikkei 225 price weighted index of the 225 top-rated companies listed in the First Section of the Toyko Stock Exchange. Francs per USD denotes the amount of Swiss Francs that 1 U.S. dollar can purchase. Aussie$ per USD denotes the amount of Australian Dollars that 1 U.S. dollar can purchase. Euros per USD denotes the amount of Euros that 1 U.S. dollar can purchase. Loonie per USD denotes the amount of Canadian Dollars that 1 U.S. dollar can purchase. The MSCI ACWI ex. U.S. Index is a market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets excluding the United States.
Z-score communicates where a numerical value (in this case, current price) is in relation to where it has been over a stated and measurable period.
Registration of an investment adviser does not imply any certain level of skill or training.
AFAM Capital, Inc. is an Investment Adviser, registered with the Securities & Exchange Commission and notice filed in the State of California and various other states. For more information, please visit afamcapital.com. Registration as an investment advisor does not imply any certain level of skill or training. Innealta is an asset manager specializing in the active management of portfolios of ETFs. Contact your financial advisor for additional information. 301-AFAM-9/6/2016