Same Stuff, Different Day
Since our last update, the headlines remain the same--fears, growth and uncertainty. First and foremost is the continuing trade war with China. We thought that more clarity would emerge over the last three months, but the same stubbornness and muscle flexing remains. As a result we have a market that bounces between hope and fear of recession. As this is written, some headlines are reporting some hints of a possible deal, but until concrete results are seen, we have to wait. The truth is no one really knows what’s next, so read all the predictions with a healthy dose of skepticism.
Decent Economic Data
The economic data that we have seen still points to a growing economy, i.e. GDP at 2.1%, healthy ISM* readings, strong retail sales, earnings and a stellar employment market. GDP wasn’t the 3+% we had seen, but still respectable. ISM activity has retreated a bit, but still remains in the growth range (+50). Along with these results, confidence remains high, and the consumer, who accounts for over 2/3’s of GDP, continues to spend at a healthy rate. With the previously mentioned job sector at historic highs, it’s likely that the current spending pattern will continue Earnings season is winding down, but once again it has surpassed expectations with over 75% of S&P 500 companies exceeding expectations, with over 75% beating earnings estimates and 57% beating revenue estimates. These are all indicators of continued growth, but the trade fears, along with the brief yield curve inversion (2 yr/10 yr yields briefly inverted, the 2 yr rate higher than the 10 and this has often, but not always predicted recessions,) have put a damper on any expectations of growth. Add to this a slowing down of the Eurozone economy and we have an uncertain mix of news that has clouded the markets for some time now. As we all know, uncertainty is the biggest impediment that markets face and these days, it’s all we seem to see.
So what’s next…again, we can only speculate, but our hope is that the trade wars will come to some sort of resolution soon. That alone may allow the markets to start looking at the economic data. That data should truly drive economic growth. Even with this in mind, we still believe, as we did in the last report, that attention to the risk of your portfolio is critical. Stock market valuations are anything but cheap and interest rates remain well below historic averages.
Focus on Controllables
As we mentioned in our last report, this is not meant as a warning of tough times ahead, but rather an alert to help you prepare for any upcoming scenarios. Proper investing should never involve "prediction," but should rather focus on probabilities and controllable factors like risk, taxes, and expenses. If you feel the need, call your advisor, arrange a meeting and make sure your investments still match your goals and risk budget. It’s always a good idea to be ahead of the curve, so as not to make an ill-timed decision. We wish you the best and look forward to hearing from you in the very near future.
*ISM- Institute of Supply Management