Economic Indicators

How do different asset classes interact with euro-U.S. dollar exchange rate? To investigate, we consider relationships between Invesco CurrencyShares Euro Currency (FXE) and the exchange-traded fund (ETF) asset class proxies used in the Simple Asset Class ETF Momentum Strategy (SACEMS) or the Simple Asset Class ETF Value Strategy (SACEVS) at a monthly measurement frequency. Using monthly dividend-adjusted closing prices for FXE and the asset class proxies since February 2006 as available through May 2025, we find that: Keep Reading

How do different asset classes interact with U.S. dollar valuation? To investigate, we consider relationships between Invesco DB US Dollar Index Bullish Fund (UUP) and the exchange-traded fund (ETF) asset class proxies used in the Simple Asset Class ETF Momentum Strategy (SACEMS) or the Simple Asset Class ETF Value Strategy (SACEVS) at a monthly measurement frequency. Using monthly dividend-adjusted closing prices for UUP and the asset class proxies since March 2007 as available through May 2025, we find that: Keep Reading

“Invest with the Fed?” finds that indexes based on the Invest With the Fed (IFED) stock selection strategy beat reasonable benchmarks. How does that finding translate to investable assets? To investigate, we look at performances since inception of two exchange-traded note (ETN) offerings:

1. ETRACS IFED Invest with the Fed TR Index ETN (IFED), with SPDR S&P 500 ETF Trust (SPY) as a benchmark.
2. ETRACS 2X Leveraged IFED Invest with the Fed TR Index ETN (FEDL), with ProShares Ultra S&P500 (SSO) as a benchmark.

We focus on average monthly return, standard deviation of monthly returns, monthly reward/risk (average return divided by standard deviation), compound annual growth rate (CAGR) and maximum drawdown (MaxDD) as key performance metrics. Using monthly dividend-adjusted returns for IFED, SPY, FEDL and SSO during September 2021 through May 2025, we find that: Keep Reading

The Inflation Forecast now incorporates actual total and core Consumer Price Index (CPI) data for May 2025. The actual total (core) inflation rate is lower than (lower than) forecasted.

What are current estimates of equity risk premiums (ERP) and risk-free rates around the world? In their May 2025 paper entitled “Survey: Market Risk Premium and Risk-Free Rate Used for 54 countries in 2025”, Pablo Fernandez, Diego Garcia and Lucia Acin summarize results of an April 2025 email survey of international finance and economic professors, analysts and company managers “about the Risk-Free Rate and the Market Risk Premium (MRP) used to calculate the required return to equity in different countries.” Results are in local currencies. Based on 2,749 specific and credible premium estimates spanning 54 countries for which there are at least six estimates, they find that: Keep Reading

How and how much does the Federal Reserve Open Market Committee (FOMC) affect the overall stock market? In their April 2025 paper entitled “The Effect of the Federal Reserve on the Stock Market: Magnitudes, Channels and Shocks”, Benjamin Knox and Annette Vissing-Jorgensen survey studies of Federal Reserve effects on the stock market, focusing on three items:

1. FOMC monetary policy surprises – effects of short rate surprises on stock market return in a half-hour window around FOMC announcements (10 minutes before to 20 minutes after).
2. Pre-FOMC announcement drift – stock market return in the hours leading up to scheduled FOMC announcements.
3. FOMC cycle – stock market return patterns between FOMC meetings.

They discuss directions/magnitudes of impacts, types of shocks (pure monetary policy or sentiment reactions to information about economic outlook) and explanations of impacts. Based on the body of relevant research, they conclude that: Keep Reading

Does the level of, or change in, the annual U.S. federal surplus/deficit systematically influence the U.S. stock market, perhaps by affecting consumption and thereby corporate earnings or by modifying inflation and thereby discount rates? To check, we relate annual stock market returns to the annual surplus/deficit (receipts minus outlays) as a percentage of Gross Domestic Product (GDP). We align stock market returns with surplus/deficit calculations (federal fiscal years, FY) as follows: (1) prior to 1977, we calculate annual returns from July through June; (2) we ignore the July 1976 through September 1976 transition quarter; and, (3) since 1977, we calculate annual returns from October through September. Using surplus/deficit data and monthly returns for the S&P 500 Index (SP500) as a proxy for the U.S. stock market during FY 1930 through FY 2024 (about 95 years), we find that: Keep Reading

The “Simple Asset Class ETF Value Strategy” (SACEVS) seeks diversification across a small set of asset class exchanged-traded funds (ETF), plus a monthly tactical edge from potential undervaluation of three risk premiums:

1. Term – monthly difference between the 10-year Constant Maturity U.S. Treasury note (T-note) yield and the 3-month Constant Maturity U.S. Treasury bill (T-bill) yield.
2. Credit – monthly difference between the Moody’s Seasoned Baa Corporate Bonds yield and the T-note yield.
3. Equity – monthly difference between S&P 500 operating earnings yield and the T-note yield.

Premium valuations are relative to historical averages. How might this strategy react to changes in the Effective Federal Funds Rate (EFFR)? Using end-of-month values of the three risk premiums, EFFR, total 12-month U.S. inflation and core 12-month U.S. inflation during March 1989 (limited by availability of operating earnings data) through February 2025, we find that: Keep Reading

Does the M2 measure of money supply reliably drive bitcoin and/or gold prices at a monthly horizon? To investigate we relate monthly change in M2 to future monthly bitcoin and SPDR Gold Shares (GLD) returns. Using monthly data for M2, bitcoin and GLD from September 2014 (inception of bitcoin price series) through February 2025, we find that:

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Does economic history rhyme in that similar economic/financial conditions precede similar equity factor performance? In their March 2025 paper entitled “Regimes”, Amara Mulliner, Campbell Harvey, Chao Xia, Ed Fang and Otto Van Hemert present a way to characterize the current economic/financial regime and relate this characterization to future factor returns. They consider seven input variables: (1) S&P 500 Index level; (2) 10-year U.S. Treasury note yield minus 3-month U.S. Treasury bill (T-bill) yield; (3) WTI crude oil price; (4) copper price; (5) T-bill yield; (6) VIX level; and, (7) U.S. stocks-bonds 3-year daily correlation. Specifically, they each month:

1. Compute for each input variable its annual change and its z-score relative to a rolling 10-year history, constraining the z-score to a range of -3 to +3.
2. For each variable, measure the similarity of its current z-score to its past z-scores for all dates based on squared difference.
3. For each date, add the squared differences across the seven input variables to compute a global similarity score for that date (lowest values are most similar to now).
4. For each past date, measure next-month gross performance of each of six long-short equity factors (market, size, value, profitability, investment and momentum).
5. Sort past dates into fifths (quintiles) based on global similarity scores relative to the current date.
6. For each quintile of past dates and each factor, take for the current date a long (short) position in the factor if its average next-month past performance is positive (negative) and reform an equal-weighted portfolio of the resulting six factor positions for the next month.

They focus on the quintiles of past dates with the most and least global similarities to the current date. Using daily and monthly data for the seven economic/financial input variables and for the six equity factors during 1985 through 2024, they find that:

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