Examining Economic Growth

The Weekly Update

Week of July 30, 2018
By Christopher T. Much, CFP®, AIF®

Markets experienced a push-and-pull last week between data indicating strong economic growth and lagging performance from several tech stocks’ earnings reports. Domestic indexes had mixed results, as the S&P 500 gained 0.61%, the Dow was up 1.57%, and the NASDAQ dropped 1.06%. International stocks in the MSCI EAFE had more of an uptick, gaining 1.32% for the week.

On Friday, July 27, we received the initial reading of 2nd quarter Gross Domestic Product (GDP). The report indicated that the economy grew at a 4.1% annual rate between April and June. This reading was the fastest pace in almost 4 years-and significantly higher than 1st quarter growth. Markets, however, had a relatively mild reaction to the GDP data due to rumors predicting even higher results.

Let’s dig beyond the headline GDP growth number to see what else it tells us about our current economic circumstances.

2nd Quarter GDP Details

  • The tax cut helped drive growth.
    The recent $1.5 trillion tax cut contributed to the latest GDP performance. Both consumers and businesses spent more in the 2nd quarter. Some economists believe this result will not last; without further tax cuts, consumers and companies won’t have additional funds at their disposal.
  • Trade tension affected GDP.
    This year’s ongoing trade drama impacted the economy during the 2nd quarter, but perhaps not the way you might expect. Many soybean farmers tried to get ahead of coming tariffs by shipping their crops to China earlier than normal. This move helped GDP increase between April and June.
  • Inflation slowed.
    When examining inflation, the Fed uses the personal consumption expenditures (PCE) without food and energy, also known as the core PCE. The 2nd quarter reading was 2%, down from 2.2%. Between healthy economic growth and solid inflation numbers, the Fed is likely still on track for two more rate hikes in 2018.

Seeing strong growth this late in an economic expansion is good news. However, now we will have to see whether the growth can continue at this rate. When discussing the GDP readings, President Trump predicted even better results in future quarters. Some economists, on the other hand, believe trade wars and consumer spending could provide headwinds.

We can’t predict the future, but we do know that economic fundamentals continue to be strong. This week, we will receive several new readings-from manufacturing to employment to motor vehicle sales-and earnings season will roll on.

If you would like to discuss any of these details and how they may impact you, we’re ready to help.

ECONOMIC CALENDAR:
Tuesday: Personal Income and Outlays, Consumer Confidence
Wednesday: Motor Vehicle Sales, ADP Employment Report, PMI Manufacturing Index, ISM Mfg Index
Thursday: Factory Orders, Jobless Claims
Friday: Employment Situation, International Trade, PMI Services Index, ISM Non-Mfg Index

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.reuters.com/article/us-usa-stocks/tech-stocks-weigh-on-wall-street-idUSKBN1KH1BH
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.cnbc.com/2018/07/27/us-gdp-q2-2018.html
https://www.cnbc.com/2018/07/27/us-stocks-economy-earnings.html
https://www.reuters.com/article/us-usa-economy/trump-hails-growth-as-one-offs-and-consumers-boost-economy-idUSKBN1KH0B7
https://www.cnbc.com/2018/07/27/us-gdp-q2-2018.html
https://www.reuters.com/article/us-usa-economy/trump-hails-growth-as-one-offs-and-consumers-boost-economy-idUSKBN1KH0B7
https://www.reuters.com/article/us-usa-economy/trump-hails-growth-as-one-offs-and-consumers-boost-economy-idUSKBN1KH0B7
https://www.reuters.com/article/us-usa-economy/trump-hails-growth-as-one-offs-and-consumers-boost-economy-idUSKBN1KH0B7
https://www.cnbc.com/2018/07/27/us-gdp-q2-2018.html
https://www.cnbc.com/2018/07/27/us-stocks-economy-earnings.html
Examining Economic Growth2018-07-30T14:00:19-04:00

Earnings Season Continues

The Weekly Update

Week of July 22, 2018
By Christopher T. Much, CFP®, AIF®

On Friday, July 20, stocks lost a small amount of ground after President Trump escalated his threats of increasing tariffs on China. However, strong quarterly earnings reports from several large companies helped provide balance in the markets. For the week, domestic indexes experienced little movement, as the S&P gained 0.02%, the Dow was up 0.15%, and the NASDAQ dropped 0.07%. International stocks in the MSCI EAFE had slightly more change, with a 0.63% gain.

What We Learned Last Week

  • Corporate earnings rose in the 2nd quarter
    As of July 20, 87 S&P 500 companies have released their 2nd quarter data. Of these companies, 83.9% surpassed analysts’ estimated results. In fact, the earnings season is going well enough that analysts have increased their growth projections. They now expect to see companies average 22% earnings growth over the past year, up from 20.7% growth projections on July 1.
  • Retail sales increased
    The most recent retail sales data indicated that consumers feel confident in the economy and labor market. June’s strong growth, coupled with upward revisions to May’s results, support predictions for healthy Gross Domestic Product (GDP) increases in the 2nd quarter.
  • Industrial production hit a new record
    In June, U.S. manufacturing and mining increased. Overall, industrial production had an annual rate that was 6.1% higher in the 2nd quarter than the 1st quarter of 2018.
  • Housing starts dropped
    The latest housing-start report came in far below estimates. This decline occurred across all U.S. regions as homebuilders shared concerns about materials costs and labor shortages. However, housing start data often fluctuates from month-to-month, and reports show that the 1st half of 2018 is 7.4% higher than the same period last year.

What Is Ahead This Week
Corporate earnings season continues, and on Friday, we’ll receive the initial reading of 2nd quarter GDP. Last week’s retail sales and industrial production numbers contribute to very high expectations for economic growth results. Some estimates indicate that GDP could have increased as much as 5.2% in the 2nd quarter—much higher than the 2% growth between January and March.

We will watch these results closely and look for additional perspectives on the economy’s underlying strength. If you’d like to know more about what may lie ahead, contact us any time.

ECONOMIC CALENDAR:
Monday: Existing Home Sales
Wednesday: New Home Sales
Thursday: Durable Goods Orders, Jobless Claims
Friday: GDP, Consumer Sentiment

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.reuters.com/article/us-usa-stocks/wall-street-slips-as-trade-worries-dampen-upbeat-earnings-idUSKBN1KA1JK?il=0
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.reuters.com/article/us-usa-stocks/wall-street-slips-as-trade-worries-dampen-upbeat-earnings-idUSKBN1KA1JK?il=0
http://wsj-us.econoday.com/byshoweventfull.asp?fid=495386&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
https://www.reuters.com/article/us-usa-economy/strong-u-s-retail-sales-brighten-economic-outlook-idUSKBN1K61KV
https://www.ftportfolios.com/Commentary/EconomicResearch/2018/7/17/industrial-production-rose-0.6percent-in-june
https://www.ftportfolios.com/Commentary/EconomicResearch/2018/7/18/housing-starts-declined-12.3percent-in-june
https://www.cnbc.com/2018/07/16/industrial-production-june.html
Earnings Season Continues2018-07-23T13:42:33-04:00

Special Report: Quarterly Update

The Weekly Update

Week of July 16, 2018
By Christopher T. Much, CFP®, AIF®

Last week, trade tensions with China lessened somewhat, while the 2nd quarter corporate earnings season started with mixed results. Against this backdrop, domestic stocks experienced sizable growth. By market’s close on Friday, July 13, the S&P 500 was above 2,800 for the first time since February 1. Meanwhile, the Dow was above 25,000, and the NASDAQ had hit a new record. For the week, the S&P 500 gained 1.50%, the Dow added 2.30%, and the NASDAQ was up 1.79%. International stocks in the MSCI EAFE increased as well by 0.16%.

We are now two weeks into July, which means the 1st half of 2018 is behind us. As we analyze what may be ahead in the markets, we’ll also strive to understand what has happened so far this year.

2nd Quarter Update: Key Details to Know

  • Domestic indexes had mixed results.
    At the end of the 1st quarter, the NASDAQ was up by 2.3%, while both the S&P 500 and Dow were in negative territory for the year. Fast-forward to the 2nd quarter’s end, and the Dow was still down with a 1.8% loss between January and June. During the same time, the S&P 500 gained 1.7% and the NASDAQ added 8.8%.
  • Trade tension persisted.
    Global trade was a major topic throughout the 2nd quarter. In April, the U.S. proposed $50 billion of tariffs on Chinese products—and China announced its own tariffs in response. The trade tension also extended to Canada, the EU, and Mexico as the U.S. added tariffs to steel and aluminum imports from these countries. While this situation attracted significant news coverage, investors were able to put much of their focus on economic details—such as corporate earnings—instead.
  • Interest rates rose.
    In June, the Federal Reserve increased interest rates by 0.25%, which marks the 2nd rate hike so far this year. The Fed gave an optimistic view of the economy and said that two more increases could be ahead in 2018.
  • The labor market stayed strong.
    In May, unemployment hit its lowest level since 2000. June’s labor report showed unemployment increasing to 4% but for a positive reason: more people reentering the job market. The latest report also showed better-than-expected job growth. Wage increases missed expectations and still have room to expand more quickly. At the same time, their steady pace should help keep inflation in check and interest rate increases continue gradually.

Looking Ahead
More 2nd-quarter data is still to come. Gross Domestic Product may have increased by as much as 5% annually between April and June. That growth rate would be over twice what we experienced in the 1st quarter. We are also at the very beginning of 2nd-quarter corporate earnings season, and analysts predict earnings growth of 20%.

Moving into the 3rd quarter, trade will likely continue to be a hot topic, but it’s far from being the only detail worth following. As we gain more information about what happened in the 2nd quarter, we will combine those perspectives with the performance we’re experiencing now. In the meantime, if you have any questions, we’re here to talk.

ECONOMIC CALENDAR:
Monday: Retail Sales
Tuesday: Industrial Production, Housing Market Index
Wednesday: Housing Starts
Thursday: Jobless Claims

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.cnbc.com/2018/07/13/us-stock-index-futures-banks-earnings-and-trade-woes-in-focus.html
https://www.bloomberg.com/news/articles/2018-07-12/asian-stocks-to-follow-u-s-gains-dollar-slips-markets-wrap
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.cnbc.com/2018/03/29/us-stock-futures-dow-data-tech-and-politics-on-the-agenda.html
https://www.cnbc.com/2018/06/29/us-futures-point-to-triple-digit-rally-at-the-open-despite-gloomy-mark.html
https://www.bloomberg.com/news/articles/2018-07-06/the-trade-war-is-on-timeline-of-how-we-got-here-and-what-s-next
https://www.cbsnews.com/news/canada-eu-steel-aluminum-tariffs-retaliate/
https://www.bloomberg.com/news/articles/2018-06-22/trade-is-an-afterthought-in-stock-market-still-glued-to-earnings
https://www.nytimes.com/2018/06/13/us/politics/federal-reserve-raises-interest-rates.html
https://www.npr.org/sections/thetwo-way/2018/06/01/615917917/unemployment-rate-drops-to-3-8-percent-lowest-since-2000
http://wsj-us.econoday.com/byshoweventfull.asp?fid=485657&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
https://www.bloomberg.com/news/articles/2018-07-06/u-s-jobs-report-shows-room-to-run-as-trade-war-threatens-gains
https://www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI
https://www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI
https://www.cnbc.com/2018/07/13/us-stock-index-futures-banks-earnings-and-trade-woes-in-focus.html
Special Report: Quarterly Update2018-07-16T12:17:42-04:00

Jonathon Much Takes the Proust Questionnaire

Jonathon Much Takes the Proust Questionnaire

In the late 1800’s, the Proust Questionnaire emerged as a popular parlor game and a way for friends and associates to better get to know one another.  We distributed the questionnaire to the CTS team so that you could see what makes them tick. Jonathon Much is first up in answering the Proust Questionnaire.

Jonathon Much Takes the Proust Questionnaire2018-07-12T12:26:24-04:00

Jobs Push Stocks Up

The Weekly Update

Week of July 9, 2018
By Christopher T. Much, CFP®, AIF®

Domestic stocks only traded for 4 days last week, due to the Independence Day holiday. In that time, all 3 major domestic indexes posted positive results for the week. The S&P 500 added 1.52%, the Dow gained 0.76%, and the NASDAQ increased 2.37%. International stocks in the MSCI EAFE were up as well by 0.56%.

Once again, trade and tariffs were a major topic on many people’s minds. On Friday, July 6, the U.S. and China placed $34 billion of duties on each other’s imports. However, instead of focusing on the trade-war escalation, another topic captured many investors’ attention: the latest jobs report.

What did we learn about the labor market?

This month’s report about the employment situation provided several indications that the economy continues to be healthy and growing.

1. The economy added more jobs than expected.
Economists predicted approximately 195,000 new jobs in June. Instead, the report showed that the economy added 213,000 new positions. This positive performance indicates the labor market may be somewhat looser than people originally thought. As a result, the economy may have more ability to continue growing without inflation becoming a bigger concern.

2. More people tried to enter the labor market.
Unemployment rose from 3.8% to 4% in June. On the surface, this result may seem negative. But, this increase comes from people who were sitting on the sidelines deciding to look for work once again. This choice indicates they feel more confident in their potential to find jobs.

3. Wage growth continued at a moderate pace.
The latest data revealed wage growth at a 2.7% annual pace, which was slightly below projections. Economists aren’t certain why wages are growing at such a tepid rate, considering the labor market’s strength. However, with a record number of open jobs, wage growth should increase later this year. In addition, June’s pace should help calm concerns about the economy growing too quickly.

One detail that June’s employment report didn’t show was any meaningful, negative impacts from tariffs. If the trade disputes continue, however, industries such as manufacturing and construction could suffer. For now, the economy is starting the 3rd quarter on relatively strong footing—after a 2nd quarter that experts say could have experienced economic growth as high as 5%.

We will continue to monitor ongoing trade developments for any lasting effects on the economy or our clients’ financial lives. As always, if you have any questions, we’re here to talk.

ECONOMIC CALENDAR:
Tuesday: JOLTS
Thursday: Consumer Price Index, Jobless Claims
Friday: Consumer Sentiment

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI
https://www.cnbc.com/2018/07/06/us-stock-futures-tariff-turmoil-and-jobs-report-in-focus.html
https://www.bloomberg.com/news/articles/2018-07-06/u-s-jobs-report-shows-room-to-run-as-trade-war-threatens-gains
http://wsj-us.econoday.com/byshoweventfull.asp?fid=485657&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
https://www.bloomberg.com/news/articles/2018-07-06/u-s-jobs-report-shows-room-to-run-as-trade-war-threatens-gains
https://www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI
https://www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI
Jobs Push Stocks Up2018-07-09T13:18:30-04:00

Happy 4th of July

Happy 4th of July

We wish you a safe and enjoyable holiday, surrounded by family and friends.

Happy 4th of July2018-07-03T14:10:23-04:00

Trade and Tariffs Rattle Markets

The Weekly Update

Week of July 2, 2018
By Christopher T. Much, CFP®, AIF®

International trade concerns continue to create uncertainty in markets around the world. Despite the markets’ slight rises on Friday, June 29, they recorded losses for the week. The S&P 500 fell 1.33%, the Dow gave back 1.26%, and the NASDAQ dropped 2.37%. Internationally, the MSCI EAFE declined 1.10%.

Friday also marked Q2’s last trading day. The U.S. economy remains strong thanks to low unemployment numbers and strong corporate earnings. Meanwhile, on Thursday, the Fed announced that all but one bank passed stress tests evaluating their ability to weather a financial downturn.

This week, we’ll address President Trump’s proposed tariffs on international imports and their effect on stock performance.

The Breakdown: Global Trade Concerns

President Trump maintains that China and other countries have consistently practiced unfair trade tactics and imposed large tariffs on U.S. exports. In response, the White House has proposed raising tariffs on imports from China, Canada, and other countries.

Unfair trade practices take several forms. In one scenario, foreign governments subsidize companies that export products. Those companies may in turn sell their products in the U.S. below cost. This approach can harm U.S. companies, cost jobs, and ultimately damage the economy. The President also argues that imported metals are a threat to national security.

The Impact: New Tariffs on the U.S.

Canada has responded to increased rates on steel and aluminum by announcing $16.6 billion in new tariffs on U.S. products, effective July 1. On July 6, President Trump will determine whether to impose additional tariffs on $34 billion of Chinese goods. Additionally, the U.S. Chamber of Commerce estimates that 2.6 million U.S. jobs could be on the line due to the administration’s trade policies.

Already, nearly 21,000 companies have asked for tariff exclusions to import metal duty free. Some of these companies claim the current trade disputes have resulted in layoffs and possible relocations or closures.

Looking Ahead: Ongoing Global Developments

Third-quarter trade developments will continue to influence markets and emerging economies. In addition, after the financial sector just posted its longest losing streak ever, analysts will be looking at how and whether they bounce back. Meanwhile, markets will also track the yield curve, which measures the difference between short- and long-term bond pricing. The curve has flattened to its lowest levels since August 2007, as investors drive up long-term bond prices in their search for safety from market volatility.

As details continue unfolding, we’ll be sure to keep our pulse on what lies ahead. In the meantime, please contact us if you have any questions on how these details relate to your financial life.

ECONOMIC CALENDAR:
Monday: PMI Manufacturing Index, Construction Spending
Tuesday: Motor Vehicle Sales
Thursday: ADP Employment Report, Jobless Claims
Friday: International Trade

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.bloomberg.com/news/articles/2018-06-28/powell-wants-the-real-economy-to-guide-fed-as-job-market-soars
http://money.cnn.com/2018/06/28/investing/deutsche-bank-fed-stress-test/index.html
https://www.cnbc.com/2018/06/29/us-futures-point-to-triple-digit-rally-at-the-open-despite-gloomy-mark.html
https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-confronting-chinas-unfair-trade-policies/
https://www.whitehouse.gov/briefings-statements/remarks-president-trump-protecting-american-workers-roundtable/
https://www.marketplace.org/2018/06/22/economy/your-new-tariff-questions-answered
https://www.pbs.org/newshour/show/will-trumps-tariffs-help-u-s-workers-it-could-be-a-wash
https://www.nbcnews.com/news/world/trade-war-looms-canada-announces-billions-retaliatory-tariffs-against-u-n887991
https://www.ctvnews.ca/business/by-the-numbers-ottawa-s-tariff-reprisal-against-trump-1.3994039
https://www.bloomberg.com/news/articles/2018-06-28/ticking-countdown-to-trade-war-enters-final-hours-economy-week
http://money.cnn.com/2018/06/26/news/companies/steel-tariffs-job-losses/index.html
https://www.axios.com/american-industries-stress-trump-trade-war-tariffs-858e6340-0492-45ef-a495-297192f2c4b4.html
https://www.bloomberg.com/news/articles/2018-06-29/trade-spat-gives-markets-bitter-ending-for-quarter-em-review
https://www.cnbc.com/2018/06/27/banks-just-posted-longestlosing-streak-ever-and-it-could-get-worse.html
Trade and Tariffs Rattle Markets2018-07-02T13:47:02-04:00