Perspectives & Commentary

Avalon produces a variety of investment commentaries.

Our perspectives and quarterly commentary are issued throughout the year and cover a range of investment-related topics.

Monthly Note

July 2016

  • In the US, employment figures bounced back after a disappointing May, and consumption was strong enough to save an otherwise mediocre second quarter GDP.  US inflation moved higher primarily due to increases in rent over the past year.  Overall, economic data in the US surprised to the upside.


  • For the most part, central banks held back from further stimulus at their July meetings. Following Brexit, speculation leaned toward further easing in Europe and Japan.



After a weak May, the June jobs report showed the labor markets resiliency with strong internals as people returned to the labor force and received higher wages on a broad sector basis.  While creating 287,000 jobs is positive, it is likely that the trend will be closer to 150,000 as we progress through 2016. This lower trend is healthy for this level of unemployment. It will take a sustained increase in participation in the labor force to grow much more quickly.  The consumer price index (CPI) rose 1% from a year ago in June, the same reading as May.  Excluding food and energy, CPI rose 2.3% driven by a sustained surge in the cost of shelter.  Weighted at about one-third of the index, shelter grew 3.5% from a year ago, and constitutes the majority of the inflation pressure present. In fact, on an unadjusted basis, the overall price index excluding shelter was negative 0.2% from a year ago.















The most disappointing economic news in the US was the second quarter GDP report; the US economy grew a meager 1.2%. The personal consumption expenditures (“the consumer”) grew at a 4.2% annual rate—the fastest pace since the end of 2014, carrying far more than its own weight. Business investment detracted, but much of the decline, about 67%, was due to oil drilling and oilfield related equipment. Overall, the US economy remains around a 2% annual growth rate.



For most of July, economic data surprised to the upside in the US. However, this is a sign of expectations declining to meet reality rather than a reacceleration in growth.  Given the weak GDP print, the US Federal Reserve is likely to wait and see how the data evolves going forward, a mantra the Fed has followed since beginning to tighten policy.


















The Central bank policies were largely unchanged in July. The European Central Bank chose to stay put with its current stimulus package as the effects of Brexit are not apparent, yet. ECB President Draghi stated the ECB has not discussed tapering its QE. With a limited number of levers to pull at this point, the ECB decision seems prudent. Meanwhile, Japan was rumored to be discussing ‘helicopter money’ or the direct financing of fiscal stimulus by the Bank of Japan. Furthering these rumors, Prime Minister Abe announced a $265B fiscal stimulus package ahead of the BoJ’s policy announcement. Instead of helicopter money, the BoJ announced much less stimulus than markets expected.



Following Brexit, the Bank of England held its policy rate steady at 0.50% with only one vote against doing so. Prior to the meeting, there was an 80% chance of a rate cut priced into the market. However, the statement made clear that August was likely to see some form of easing, and not simply by cutting interest rates.



The Federal Reserve left interest rates at 0.25-0.50%, but upgraded the outlook for the US economy. The statement was hawkish, aimed to keep rate hikes a possibility in 2016. The only caveats in the statement were the decline in inflation expectations and business investment. However, the FOMC continues to see inflation rising toward 2% as “as the transitory effects of past declines in energy and import prices dissipate.” Overall, the Fed remains in a tightening cycle, but it appears to be waning. The US economy is not growing particularly quickly, but it is growing. This choppy, inconsistent speed is likely to persist in the second half of the year.



Sam Rines





The opinions expressed herein are those of Avalon Advisors, LLC investment professionals at the time the comments were made and may not be reflective of their current opinions. Nothing herein shall be construed as investment advice or a solicitation or offer to purchase or sell any securities.



Avalon Perspectives

Avalon Weekly Market Guide

December 10, 2018

Avalon Weekly Market Guide

December 3, 2018

Fed Chairman Powell's November 2018 Speech

November 28, 2018

Avalon Weekly Market Guide

November 26, 2018

Avalon Market Update

October 12, 2018

Low-Balling Inflation Puts the Fed at Risk

September 28, 2017

TPP Is Dead. What Now?

January 25, 2017

The Possibilities of Trump's U.S.

December 9, 2016

Reversal Rates Are the Next Big Challenge for Central Banks

November 23, 2016

The Good Ole Days Aren't Coming Back

October 13, 2016

The Federal Reserve's Anti-Volcker Inflation Revolt

August 24, 2016

Why the Fed Needs to Raise its Inflation Target

August 18, 2016

Is the Rest of the World Ditching America to Trade with China?

August 3, 2016

Has the Federal Reserve Become Congress's Golden Goose?

July 20, 2016

The Fed Must Avoid the 'Credibility Trap'

June 21, 2016

Why the Fed Needs to Make a Policy Error

May 18, 2016

The Fed Faces Its 'Anti-Volcker Moment'

May 9, 2016

The Fed's Critical Global Mandate

April 29, 2016

Why the Federal Reserve Is All Talk

April 26, 2016

Is the Global Middle Class Really Here to Stay?

April 12, 2016

Quarterly and Monthly Notes

Quarterly Note

Third Quarter, 2018

Quarterly Note

Second Quarter, 2018

Monthly Note

May 2018

Monthly Note

April 2018

Quarterly Note

First Quarter,  2018

Monthly Note

February 2018

Yearly Outlook


Monthly Note

November 2017

Quarterly Note

Third Quarter,  2017

Monthly Note

August 2017

Monthly Note

July 2017

Quarterly Note

Second Quarter,  2017

Monthly Note

May 2017

Monthly Note

April 2017

Quarterly Note

First Quarter, 2017

Monthly Note

February 2017

Monthly Note

January 2017

Quarterly Note

Fourth Quarter, 2016

Monthly Note

December 2016

Monthly Note

November 2016

Quarterly Note

Third Quarter, 2016

Monthly Note

August 2016

Monthly Note

July 2016

Quarterly Note

Second Quarter, 2016

Monthly Note

May 2016

News | Press

Avalon Advisors, LLC Announces new Co-Chief Investment Officer

October 2, 2018

Avalon Advisors, LLC Named to 2018 Financial Times 300 Top Registered Investment Advisers

June 28, 2018

Avalon Advisors Announces San Antonio Expansion

December 21, 2016

Avalon Advisors Announcement

December 16, 2016

Sam Rines

April 11, 2016

2929 Allen Parkway, Suite 3000, Houston, TX 77019 | 713.238.2050

755 E Mulberry Avenue, Suite 105, San Antonio, TX 78212 | 210.694.4329

©2018 Avalon Advisors, LLC | All Rights Reserved