Posts Tagged ‘S&P 500’
Livingston Survey strengthens
One of my economic “touchstones” is the semi-annual Livingston Survey, begun in 1946 by the famed economist and journalist Joseph A. Livingston. The survey continues today under the auspices of the Philadelphia FED. Twice a year they survey a panel of economic forecasters on the key metrics of unemployment, GDP growth, inflation, T-Bill and Bond rates, and the S&P 500. Not only are their opinions of interest, but also the change in the central tendency of those opinions over time.
For example, six months ago, the panel forecasted that year-end unemployment would be 4.3%, with a slight decline to 4.2% by mid-year, 2018. Now, this forecast has shifted slightly downward, with an expected year-end unemployment rate of 4.1%, mid-year 2018 projected at 4.0%, and year-end 2018 at 3.9%. These are decidedly low numbers, and suggest an econonomy at nearly full steam. (“Frictional” unemployment, which is the lowest level we would normally see, is generally thought to be close to 3%.)
Previously, year-end GDP growth was projected to come in at about 2.5%. That’s now up to 2.9%, settling back to about 2.5% by mid-year 2018. Projections of inflation are also solid, with CPI ending the year at about 2.1% and PPI (producer price index) at about 3.0%. Both of these estimates are slightly lower than previously forecasted. Intriguingly, CPI is forecasted to stay about the same in the coming year, while PPI should decline to about 2.0% by the end of the year next year.
The cost of debt is projected to increase in 2018, albeit at modest rates (and lower than previously projected). Previously, the 10-year bond rate was forecasted to end the year at about 2.75%, but now should end the year at about 2.45%, according to the panel. Rates should rise in 2018, but more slowly than previously projected, ending 2018 around 3.0%
Finally, the June survey projected that the S&P 500 would end the year at 2470, but now the panelists think the market will end the year at 2644. (I note that the S&P sits at 2691 as I write this.) The S&P is projected to end 2018 at 2805, or about 6% higher for the year.
The full survey also contains data on a variety of other topics (auto sales, corporate profits, average weekly earnings, etc.). You can subscribe by visiting the Phily Fed at www.philadelphiafed.org/notifications.
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REITs — good news trumps “iffy” news
The “headline” in Erika Morphy’s piece in GlobeSt.Com this morning was that was that REITs underperformed the S&P 500 for August and September. Specifically, REITs were up 1.85% in the 3rd quarter this year, compared to 6.35% for the S&P 500. You have to dig a little deeper to get to the heart of the matter, though.
First, let’s remember that investors by-and-large buy REITs as an income vehicle with equity up-side. The current average REIT yield is 3.88% — not bad, compared to corporate bonds or preferred stocks, and more targeted income seekers can go after single tenant retail with a yield of 5.9%. (For a great review of this, see a piece by Brad Thomas in Forbes.com from September 10). Couple those sorts of dividend yields with any upside equity potential, and you have a real investment powerhouse in today’s market. For comparison, the current yield on the S&P 500 is 1.97%.
But, the news gets better. For the 12-months ending September 30, the NAREIT index was up 33.81%, compared to 30.2% for the S&P. Do the math — the total return for a portfolio of REIT shares for the past year would have been (33.81% + 3.88% = ) 37.69%. The total yield for the S&P 500 would have been (30.2% + 1.97% = ) 32.17%. Thus, slightly more than a 500 basis point return advantage to REITs.
Of course, (and this goes without saying), past performance doesn’t translate into future returns…..
From a small northwestern observatory... 