03|03|2016

Impact of a Global Economy

Glass-globe

Last week came and went without much happening… yeah.  While the S&P 500 lost some weight last week, we saw several days of good news on the domestic front get hampered by international activity.  Here are the details.

The good news:

  • GDP surprised to the good at 4% annualized for Q2 2014[1]
  • Unemployment rose to 6.2%[2]
  • US Payrolls added over 200,000 jobs for the 6th straight month[3]
  • US Consumer confidence increased to 90.9, the highest it has been in 7 years[4]

GDP had an impressive rebound during Q2 2014.  Most notably, inventory building played a large role in Q2 performance.  The 2nd half (H2) of 2014 needs to see sustained growth at or around 3.3% annualized in order for the US to maintain the current pace of expansion seen since the end of the great recession.  Something that will be made more difficult by the same thing that buoyed Q2 growth.  If inventories are loaded at this point it should act as a detractor during the next couple of quarters as those get depleted.

Unemployment increased to 6.2%.  Yes, I am listing this under good news.  As I mentioned earlier US payrolls added over 200,000 jobs in July, the 6th straight month in excess of 200,000.  So why did the rate go up?  More people are looking for jobs as can be expected with a 7 year high on consumer confidence.  Consumption should stay strong in Q3 and the participation rate should continue to grow as well.  The more people actively in the work force – the higher the unemployment rate.

With so much good news why did the S&P 500 shed 2.66%? So enters the global economy…

The bad news…

  • S&P 500 lost 2.66%[5]
  • Argentina defaulted on a $539M interest payment[6]
  • Banco Espirito Santo bail out expected to reach €4.9 Billion
  • Geopolitical/violence concerns in Ukraine and Gaza

Early in the week good news regarding the US economy fanned the fire that many felt the fed would increase rates sooner than anticipated.  Those fears were assuaged with the Fed conference on Wednesday as well as elevated unemployment on Friday.

Argentina’s inability to make its $539M interest payment sent a shock wave as Emerging Economies continue to see issues.  This debt issue comes on the heels of Portugal recently announcing that they will have to pay €4.9 Billion to bail out Banco Espirito Santo.

Lastly and certainly not least, the continued tensions in Gaza as well as Ukraine absolutely way on future economic conditions.  Sanctions against Russia will impact several Eurozone countries as well as the US.  None harder hit than Russia of course.

So, good news/bad news, what else is new.  Q2 earnings season is well underway and both earnings and revenue have been strong; which is exciting as revenue is a good indicator of future earning capability.  Inflation should also become tamer in the coming months as fuel costs and import costs have been both trending lower.  When you have High consumer confidence, tame inflation, and good business investment, as it has started to appear, the consumer should have a strong showing for H2 2014.

For more information:

If you would like an in-depth analysis of your current positions and allocation, please feel free to call Jason Roque at 719-313-7536 to schedule an appointment.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services.  Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.  Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

 

 

[1] www.investing.com

[2] www.mfs.com

[3] www.jpmorganfunds.com

[4] www.mfs.com

[5] www.jpmorganfunds.com

[6] www.mfs.com