Today was another down day in the stock market and each successive
decline is a bit frustrating. Changes to less risk exposure and more income
focus has allowed accounts to perform better than the market. Trouble is, portfolios
performing better than the market when both are going down is a frustrating
consolation. For now, none of the broad indexes are more than 4% down for the
year and while that’s not good news, the constructive aspect of the profile is
that nothing in the economy, nothing regarding the Fed, and no news on the
trade front to exploit in the media, is certain. So what’s up?
The Economies
Much of the economic growth in the US over the past few
years can be directly attributed to the rise in employment. For now that
remains strong, and those who know me know that any positive growth is,
positive growth. Industrial production has remained firm, Retail Sales data has
continued an upward trend and manufacturing indexes have been steadily above a
level signaling expansion. On the inflation front, Personal Income (my
favorite) is, according to the Government Bureau of Economic Analysis, over 4%
higher than last year. It all sounds good with one exception, vocal caution
from corporate CEO’s that could increase in the New Year when earnings are
released.
Another
challenge is the growing worker discord in Europe that is directing attention away
from economic issues, and even Brexit. China is facing headwinds from rising
real estate concerns, trade issues that directly affect their manufacturing
base and a growing middle class that significantly increased debt. The point is,
without meaningful global growth, the US economy is going to remain in a
cyclical down turn, in my opinion, into the New Year.
The Fed
The Fed will raise rates one more time this year and at
that point it seems clear from their statement that their wait and see approach
is warranted going forward. It seems fair given the caution that is coming from
the corporate sectors. And overall inflation has quickly slowed down as sections
of the economy have shown some moderation. In my opinion this is a good
environment for the domestic economy to moderate and for the time being I’m
going to continue to invest in higher income, less cyclical sectors, and when
the economy picks up again, which my analysis now suggests could occur in the
spring of next year, I’ll look for value in the beaten up cyclical sectors.
Tech, Banking
Healthcare and Politics
I figured it would be impossible not to mention the more
familiar mess that is filling the air. Namely, stories of every shape and the
credibility of much of it very elusive to say the least. What is clear is the
change on government. More focus and impact on Healthcare, maybe a revisit of attacks
on banks and much brewing on the rising concerns of the tech industries unchecked
independence. These are real issues that can gain traction along with legislation
to fix other problems many of which probably will never reach the WH desk.
Once again, in my opinion the US economy is moderating,
but not threatened with a near term recession. The global economy needs to show
some greater focus on managing interest rates and stimulus packages, especially
China. For now the accounts are defensively positioned until there are signs to
“step on the gas”. We’re participating in the market and the volatility and
decline continue to feel a lot worse than they’ve been, but they’ve been
declines nonetheless. And I promise to keep everyone posted.
