11-13-2013 06:02 PM
By Wasif Latif, Vice President, Equity Investments
This week's economic releases, although providing plenty of upside surprises, continue to support our slow-growth thesis. The advance estimate of third quarter GDP indicated the U.S. economy grew at a 2.8% inflation-adjusted rate, substantially higher than the consensus estimate of 2.0%. The Leading index for September (formerly known as the Index of Leading Economic Indicators) rose a healthy 0.7%, forecasting continued economic growth as we head into 2014. Led by auto and student loans, consumer credit was higher than expected, up to $13.7 billion in September. In addition, personal income for September was also higher than expected, rising by 0.5%.The jobs market is definitely improving, as indicated by Friday's announcement of a 204,000 increase in the labor force.
|USAA Monthly Market Talk: Outside the Beltway|
USAA's Bernie Williams looks at the month of October. While it was full of strife inside D.C.'s Beltway, the markets enjoyed a banner month.
Gazing into next year, we note that the consensus of economist forecasts calls for an acceleration of U.S. "real" or inflation-adjusted economic growth of 2.6%, up from the weak 1.6% forecast for this year. If one adds in estimated inflation of 1.7%, then the consensus or stated estimate for economic growth is 4.3% for next year. Comparing this to the consensus forecast for S&P 500 earnings growth of 11% next year leaves us skeptical that this lofty goal can be reached, particularly given that corporate profit margins are already at elevated levels.
The plethora of positive economic news sent stocks up and bonds down. The S&P 500 index rose 0.51% for the week to close at 1,770.61, just shy of the record high hit last week. U.S. treasury bonds declined in price, with the yield on the 10-year rising 0.13% on the week to close at 2.75%. Gold declined by 2.1%, ending the week at $1,288.60 an ounce.
For more insights on the markets, read our investment outlook for the third quarter.
USAA Investments Managed Portfolio Outlook
Our view of caution toward risk assets remains unchanged. We remain slightly overweight in bonds and 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 have a small position in gold and precious-metals mining stocks, which we view as attractive as a long-term inflation hedge. For investors seeking exposure to precious-metals mining stocks, the USAA Precious Metals and Minerals Fund is an example. 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 upon your individual goals, objectives, risk tolerance and time horizon.
Economic Releases Scheduled for Next Week:
• Mortgage applications
• Initial jobless claims
• Trade balance
• Industrial production
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.
Originally posted on Nov. 8, 2013