economics

Market Moving News

Market Moving News

As of this week, the government shutdown is now the longest in U.S. history.  Granted, it is only a partial shutdown. Previous wholesale shutdowns occurred in January 2018 over immigration (specifically saving DACA-Deferred Action for Childhood Arrival) which lasted 3 days and October 2013 (over saving Obamacare) which lasted 16 days. 

These prior shutdowns can be used to estimate the economic impact of the current one.   According to the Office of Management and Budget, the October 2013 government shutdown lowered real GDP growth by 0.2% to 0.6% - or somewhere between $2 billion and $6 billion in lost economic output.  It is estimated the current shutdown is knocking off anywhere from 0.1% to 0.5% of GDP per day.  It will take quite a while for the actual impact to show up in economic stats. 

3rd Quarter 2018 | John's Market Commentary

3rd Quarter 2018 | John's Market Commentary

Well, 2018’s third quarter earnings season is history.  It was pretty much a repeat of both the first and second quarters.  The U.S. economy will stay strong in 2019 and inflation will tick-up above 2% and so the U.S. central bank should continue to raise interest rates gradually, New York Fed President John Williams said Tuesday.  “Given this outlook of strong growth, strong labor market and inflation near our goal and taking account all the various risks around the outlook, I do expect further gradual increases in interest rates will best sponsor a sustained economic expansion,” Williams said at a press briefing.

2nd Quarter 2018 | John's Market Commentary

2nd Quarter 2018 | John's Market Commentary

Well, 2018’s second quarter earnings season is history.  It was pretty much a repeat of the first quarter.  Once again, if you were to read the headlines, you would be led to believe the end-of-times was near.  Reporter anxiety continues to run high and, at times almost hysterical.  The continuing trade spat between the U.S. and China (and other countries), the threats from North Korea and Iran, the geopolitical risk from a populist Italy and a messy Brexit, or any one of several Trump tweets all ensured the fear-based media operated in full-on mode.  Of course, this in turn has fed market volatility, which has risen considerably in 2018.      

While that approach may be good at grabbing attention, it does little to convey the current situation of our global economy.  The headlines are all bark, no bite.  The reality, at least at this early juncture, is that the tariffs have yet to have any impact on the U.S. economy.  Small business sentiment continues to run high and, producers are in growth mode.  And, more importantly, broad based consumer confidence continues to run high as well.  75% of our GDP is created through consumer spending and, make no mistake, the consumer is spending!!  Unemployment is at record lows, wages are rising, and the public feels confident in their financial position. 

2nd Quarter Economic Update | August 2018

2nd Quarter Economic Update | August 2018

The 2nd quarter increase in real GDP reflected increases in consumer spending, exports, business investment, and government spending.  The only decreases were in business inventory investment and housing investment.  The increase in consumer spending reflected increases in services and both durable and nondurable goods.  The unemployment rate is low, wages are increasing and people, in general, feel good about their financial situation.  The increase in exports reflected increases in exports of goods.  Clearly a result of foreign companies purchasing supplies prior to tariff rate increases going into effect. 

Concerns, however remain.  Last quarter we noted the possibility of the economy overheating.  We now believe this is less likely because of the potential impact of a global trade war.  Business activity appears to be slowing as companies weigh the odds of there being a trade war or not.  As is, the tariff increases that have been implemented are small relative to global trade.  The real danger continues to be the uncertainty about what happens next.  If trade tensions sap business confidence, causing executives to put off capital spending and other investment decisions, then the damage could get serious.  Time will tell. 

The Tariff Tiff | History Repeating Itself

The Tariff Tiff | History Repeating Itself

“History doesn’t repeat itself, but it often rhymes.” – Mark Twain

Financial crises have hit the global markets on a regular basis throughout history.  And it appears financial crises will continue to pop up at regular intervals into the future.  The first recorded speculative bubble was Tulip Mania in 1637, a period in the Dutch Golden Age during which the prices for fashionable tulip bulbs reached extraordinarily high levels only to dramatically collapse.  Today, we view stocks, bonds and commodities as our investments of choice and, as always, current events continue to cause the financial markets to fluctuate, sometimes dramatically. 

Here is a brief history of major financial crisis that have hit the globe in the past few decades.  Each time, the stock and bond markets have taken a beating.  And time and again, they bounce back to higher highs.   

1st Quarter Economic Update | May 2018

1st Quarter Economic Update | May 2018

Our economic indicators continue to run positive for the first quarter of 2018.  Consumer spending, business investments and residential fixed investments rose at a 4.6% annual rate.  Gross Domestic Product (GDP), a broad measure of the nation’s overall economic activity has shown consistent growth over the past three quarters; up 3.2% in 2017’s 3rd quarter, 2.9% in the 4th quarter and 2% in the 1st quarter of 2018.

While the economic news is positive, there is now a concern the economy is potential overheating.  The period of easy money has come to an end.  The Fed is raising interest rates, albeit slowly.  However, there are growing employment pressures which have impelled economists and market watchers to voice concern over the potential for rapid inflation.   In addition to this, global trade rhetoric and the risk of political gridlock, have marked the return of stock market volatility.

The Eurozone economy finished 2017 with a bang showing growth at the fastest pace since 2007.  Year-over-year, GDP in the region grew at a 2.6% pace with Germany and Italy having picked up the pace.  The German economy rose 0.8% on the quarter while France, the 2nd largest economy, and Italy both grew at 0.5% on the quarter and 2.2% annualized.  However, the economic machine has throttled back to neutral.  The tariff debate and other political concerns are primarily to blame.  Whether or not this is a passing condition remains to be seen.

4th Quarter Economic Update | January 2018

4th Quarter Economic Update | January 2018

Once again, the economic metrics we follow indicate growth is strong around the world.   The ultra-loose monetary policies that were implemented due to the financial crises a decade ago have led to an expanding global economy resulting in many countries continuing to see strong GDP growth.  Labor markets are solid, global trade is healthy and commodity prices are higher.  All of which have led to the best global growth in over seven years.

The U.S. economy is benefiting from a job market that continues to improve.  Unemployment is at a historical low of 4.1% and wages are slowly rising – and should continue to do so at an accelerating rate in 2018.  Housing is often the greatest indicator of how the consumer feels about the economy.  Construction continues to be strong as existing home sales hit an annual rate of 5.81 million homes in November 2017, the highest level since 2006.  This is still well below the levels seen in 2005 during the construction boom times.  And, U.S. GDP has been revised upward to 3.2% for 2018.

Quiet Market Turn Scary...Create Opportunity

Quiet Market Turn Scary...Create Opportunity

If you haven’t been paying close attention to investment markets, you might be now.  While the investment world spent the year 2017 plodding steadily upward with relatively low volatility, the New Year has brought with it over-exuberance in January followed by mild panic in February.  Needless to say, markets have definitely caught our attention over the last few days.

Our call to “stay the course” couldn’t be stronger.  We have advised folks to expect a market correction for over a year now.  Markets will generally experience a 5-10% correction in any given year, yet we actually closed in on a 24 month run without one.  It’s been long overdue and actually welcomed after the feverish pace at which stocks were purchased in the month of January.  While the economy continues to be on solid footing, no significant changes spurred on January’s buy excitement, and nor did they contribute to the sell-off we have seen the last 2 trading days.