Permanent Value

Week in Review 1/27/14

Bruce Doole
January 27th, 2014

Economic Update

Growth The BEA’s third revision to 3Q13 GDP showed the economy grew 4.1%. Much of the strength is attributed to a build up of inventories, which could shift to a drag in coming quarters as inventory levels normalize. Retail sales had a solid end to the year, increasing 0.2% overall and 0.7% for the core control group (which excludes autos, gasoline, building materials and food services). Industrial production increased 0.3% in December, with manufacturing industrial production increasing in the fourth quarter in general. The Markit manufacturing PMI decreased to 53.7 in the flash January release, partly due to extreme weather effects. Existing home sales increased to 4.87 million in December, the first monthly increase since July.

Jobs The Bureau of Labor Statistics released the December employment report, which showed job growth of 74,000 and an unemployment rate of 6.7%. Initial claims ticked up 1,000 to 326,000, although the weekly figures have been volatile over the past few months given the holiday season. Inflation Consumer prices increased 0.3% in December (up 1.5% year-over-year), on increasing energy prices and relatively subdued core increases. Core prices firmed slightly, rising 0.1% (up 1.7% year-over-year). Producer prices increased 0.4% in December on the back of higher energy prices, and core prices increased 0.3%. Import prices were unchanged in December. Overall, the inflation environment remains benign.

Investment Themes

  • While earnings growth has slowed, low average inflation and interest rates still make stocks look cheap in relative terms.
  • Large-cap and growth stocks look cheapest.
  • High-yield bonds look cheaper than Treasuries, but a diversified approach to fixed income investing seems appropriate given economic uncertainty.
  • Residential real estate continues to look attractive as a long-term investment.

 

Source: JP Morgan Funds