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December Jobs Report Clouds Recovery Story

by Community Manager

‎01-10-2014 01:09 PM

December jobs report clouds recovery story.

By Matt Freund
Chief Investment Officer, USAA Mutual Funds


Just when the Federal Reserve thought it was safe to start slowly dialing back its monetary stimulus program, out comes a surprisingly weak December jobs report that raises questions about how sturdy the economy actually is.


The Labor Department says the economy created only 74,000 new jobs last month. That number is barely a third of the consensus forecast for December, and less than half of the monthly average over the past two years.


Minutes from the Dec. 17-18 Fed meeting indicated that its decision to reduce its monthly bond-buying program from $85 billion to $75 billion was made in large part due to the steady gains in job creation. The Labor Department number fell far short of the 238,000 new private-sector jobs in December reported by payroll processor ADP earlier in the week. ADP said the manufacturing and construction sectors were notably strong during the month.


Which job number tells the more accurate story about the health of the U.S. labor market? We’ll get the answer to that question in the coming months. If December proves to be an anomaly, we expect the Fed’s gradual stimulus-reduction plan will likely stay on track. If the early months of 2014 also indicate weakness in job creation, the stimulus reduction may have to be revisited. The Fed’s recent cautiousness may give it room to maneuver without causing too much market upheaval.


Retail sales during the all-important holiday shopping season also proved weaker than hoped, with a number of major retailers giving notice that fourth-quarter profits will not meet expectations.


It’s still too early to see an overall earnings trend for the October-to-December quarter, but forecasts of earnings growth have been trimmed back during the quarter. We are concerned that lower earnings growth may mean the price-to-earnings multiples that expanded to above-historic levels in 2013 may not be sustainable.


And while earnings growth may be slipping, income-focused investors can take heart that dividend growth appears to still have traction. S&P Dow Jones Indices reports that dividends paid during the fourth calendar quarter grew by nearly $13 billion, and it predicts payouts will increase even more in 2014 as companies share more of their profits and balance-sheet cash with stockholders. Last year nearly 3,000 companies raised their dividends, according to S&P Dow Jones Indices.


For more on how we see 2014 shaping up for investors, please read our investment outlook.




USAA Investments Managed Portfolio Outlook


Our view of caution toward U.S. equities remains unchanged. We remain slightly overweight cash in our diversified managed portfolios. For investors interested in income-oriented bond investments, the USAA Intermediate-Term Bond Fund, the USAA High Income Fund and the USAA Income Fund are examples. For investors interested in tax-free income, the USAA Tax Exempt Long-Term Fund, the USAA Tax Exempt Intermediate-Term Fund and the USAA Tax Exempt Short-Term Fund are examples.


We also are overweight to assets that are positively correlated to inflation expectations. The USAA Real Return Fund also provides potential protection against the risks of long-term inflation.


Emerging markets represent another opportunity. Though they were hit especially hard recently, we believe that emerging markets remain attractive. They offer both an interesting long-term prospect for growth and compelling valuations. The USAA Emerging Markets Fund offers exposure to stocks in less-developed countries.


As always, we encourage investors to speak with one of our financial advisors, who can help determine which investment vehicles are best suited for you based on your individual goals, objectives, risk tolerance and time horizon.

This material is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing.


Consider the investment objectives, risks, charges and expenses of the USAA mutual funds carefully before investing. Contact us at 1-800-531-8910 for a prospectus containing this and other information about the funds from USAA Investment Management Company, Distributor. Read it carefully before investing.


Investing in securities products involves risk, including possible loss of principal.


Past performance is no guarantee of future results.


As interest rates rise, existing bond prices fall.


Non-investment grade securities are considered speculative and are subject to significant credit risk. They are sometimes referred to as junk bonds since they represent a greater risk of default than more creditworthy investment-grade securities.


Some income may be subject to state or local taxes or the federal alternative minimum tax.

Foreign investing is subject to additional risks, such as currency fluctuations, market illiquidity, and political instability. Emerging market countries are most volatile. Emerging market countries are less diverse and mature than other countries and tend to be politically less stable.


The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies from several industrial sectors representing a significant portion of the market value of all stocks publicly traded in the United States. Most of these stocks are listed on the New York Stock Exchange.


USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor.


High double digit returns are attributable, in part, to unusually favorable market conditions and may not be repeated or consistently achieved in the future.


Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers.


The Real Return Fund may be subject to stock market risk and is non-diversified which means that it may invest a greater percentage of its assets in a single issuer. Individual stocks will fluctuate in response to the activities of individual companies, general market, and economic conditions domestically and abroad. When redeemed or sold, may be worth more or less than the original cost.


Managed Accounts is a service of USAA Investment Management Company (USAA), a registered investment adviser and broker dealer.


Diversification does not guarantee a profit or prevent a loss.

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