Timmer Questions 60/40 Portfolio Revival Amid Weakening Stock-Bond Link
Fidelity's Jurrien Timmer questions the 60/40 portfolio comeback as higher Treasury yields sustain a positive stock-bond correlation.
US industrial production was flat in August, missing expectations, while manufacturing output fell 0.3%.
The following data covers US industrial production and capacity utilization for August.
Industrial activity in the US turned out softer than anticipated in August. Total output was flat, missing the expected 0.3% increase, while factory production dropped 0.3% against a predicted 0.3% advance.
The manufacturing data was the weakest component of the release. The shortfall of 0.6 percentage points indicates that factory activity slowed during the month. Capacity utilization remained at 76.3%, slightly below the estimate and unchanged compared with July.
A quick assessment: The weaker production numbers point to some cooling in the industrial sector of the US economy. This would normally exert mild downward pressure on Treasury yields and the dollar, though the Federal Reserve is likely to keep its focus on inflation and employment for its next policy decision. One weak industrial report will not change the Fed's outlook on its own, but it contributes to a softer growth signal after this week's rate increase.
This report tracks the monthly change in output from US factories, mines, and utilities. Capacity utilization indicates the proportion of the economy's industrial capacity that is in use. Traders watch the data for signs of strengthening or weakening economic activity and for inflation risks when plants run close to full capacity.
A detailed breakdown of the Federal Reserve's August industrial production numbers reveals clear differences across market categories, industry groups, and capacity use.
Market Groups Breakdown
Industry Groups Performance
Capacity Utilization Rates
In contrast, the Philly Fed index released yesterday showed stronger readings.
The regional survey data from the Philadelphia Fed Manufacturing Index, also released yesterday, painted a different picture of factory activity compared with today's hard data.
Key takeaways from the differences:
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Fidelity's Jurrien Timmer questions the 60/40 portfolio comeback as higher Treasury yields sustain a positive stock-bond correlation.
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