The following economic awareness entry is based on short-term events and therefore should not be taken as information towards making investment decisions, which are of a long-term nature. It is only meant to provide clarity regarding current economic events, as there is often a large degree of incorrect information dispersed through the media or other sources.
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 a number of 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.
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
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.