Bad News is Good News Again

Extremely cold weather in the United States, a sell-off in equities and in emerging markets, and large swings in fund flows combined for a volatile start to the year. But none of this will derail the ongoing U.S. economic expansion, and investors should take advantage of this temporary weakness.

February 11, 2014    |    By Scott Minerd

Global CIO Commentary by Scott Minerd

The cold snap in the eastern United States is continuing into February and could have a dramatic impact on economic output. Interesting research from Bank of America shows that adverse weather could reduce first quarter economic growth by 1-2 percent. Our analysis below shows the negative effect of frigid Januaries on retail sales. The potential economic damage from storm after storm raises the prospect that the U.S. Federal Reserve could slow its pre-stated tapering course.

If we see real evidence of a U.S. economic slowdown, more liquidity from the Fed can be expected. Investors still have faith in the Fed’s ability to make further accommodations, as evidenced by how the U.S. stock market took last Friday’s tepid jobs report for January in stride. This development takes us back to the "Alice in Wonderland" world where bad news can be good news for stocks and bonds.

The near-term risk is to the downside for U.S. 10-year Treasury yields, which could fall from the current level of about 2.76 percent to closer to 2 percent. Not so long ago, at the end of December, the 10-year rose above 3 percent and many investors presumed rates would continue rising in a secular bear market for fixed income. How quickly things change.

Cold Weather Dampening U.S. Economic Activity

The effects of December’s frigid temperatures have already been seen in recent U.S. economic data releases. With January temperatures more than three degrees colder than average, it is likely that economic activity will continue to be depressed in the first month of the year. Retail sales show a particularly strong correlation with temperatures in January, suggesting that data for January will likely show restrained growth.



Source: Haver, Guggenheim Investments. Data as of 1/31/2014.

Economic Data Releases

More Adverse U.S. Weather Leads to Weak Payrolls Report

  • Non-farm payrolls showed a second month of weakness, with the U.S. economy adding just 113,000 jobs in January. Job losses were concentrated in retail and government sectors, while manufacturing and construction payrolls added more than half of the total new jobs.
  • The U.S. unemployment rate edged down to 6.6 percent due to a strong gain in the household employment survey.
  • The average work week held steady at 34.4 hours, while average hourly earnings edged up 0.2 percent in January.
  • Jobless claims settled back down to 331,000 for the week ended January 31 following a 22,000 spike the previous month.
  • The NFIB Small Business Optimism Index ticked up to 94.1 in January from 93.9 in December, recovering optimism levels from last summer after a downturn in late 2013.

German Data Slips, Puzzling Chinese Export Data

  • German exports unexpectedly fell in December, down 0.9 percent, the first decrease since July. Germany’s trade balance ended 2013 at all-time highs.
  • December industrial production fell across the euro zone, with output down 0.6 percent in Germany and 0.3 percent in France following strong production in November.
  • Chinese exports unexpectedly jumped 10.6 percent in January, though there are concerns about the reliability of the data.
  • China’s HSBC Services PMI registered 50.7 for January, the second lowest reading since the index began in 2005.
  • Japan’s Economy Watchers Survey of current conditions decreased to 54.7 in January after increasing the previous two months. Worsening sentiment may reflect concerns about an upcoming tax hike in April.


February 21, 2018

Fixed-Income Outlook: Walking the Risk Tightrope

Current conditions could persist for some time, but with a possible recession approximately two years away, the time for caution is approaching.

February 20, 2018

The Market Is Finally Getting the Joke

Investors are coming to terms with the idea that the Fed will keep raising rates because of inflation and economic pressures.

January 23, 2018

Davos as Contra-Indicator

Euphoria at Davos may be a sign that the market melt up may soon begin to cool.


Forecating the Next Recession 

Forecating the Next Recession

Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”

Macro Themes to Watch in 2018 

Macro Themes to Watch in 2018

In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”

Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.