The Month of Volatility
The month of October has historically been volatile. This month could follow that trend due to the recent impeachment talk last week. There’s a historical significance surrounding impeachments with Nixon and Clinton. When President Nixon was impeached, the market was already crashing and was heading into a recession. However, with President Clinton, the markets rallied big-time and the economy was booming. At the end of the day, it’s the market fundamentals that matter the most over politics.
We’re starting a new quarter, but it feels like it’s the same as the last quarter. The news on Friday that sent the markets down was that there’s been talk about the administration possibly restricting U.S. investment in China. According to the talk, companies wouldn’t be able to invest in China. That would have really disrupted the market. However, over the weekend everyone kind of backed off that topic. It’s interesting to see this bad idea floating around in the news and how it impacts the markets negatively. This is a big focus here in the U.S. but to China, it’s an even bigger focus because this is the 70th anniversary of the People’s Republic of China. On October 1, 1949, the People’s Republic of China was formed and that is a very big deal to them, especially within the Communist Party. They have a lot of events planned, along with parades and other things to celebrate. It’s a very public display of unity and international news. They can’t lose face going into the biggest week of the year for them. This is also the 17th straight weekend of the protests in Hong Kong. While Hong Kong is not officially under the People’s Republic of China, it is part of their overall sphere of influence. This restriction talk could very negatively impact the way that people view the strength of the Communist Party. Anything from the U.S. that may negatively impact that area for them, they’re going to try and sweep under the rug for a while. We saw that firsthand over the weekend. The U.S. came out strong and it looked like a lot of things went back and forth and ultimately it turned out to be nothing.
Underneath the Surface
There seems to be some negative noise in the media regarding the consumer. However, if you look at the income charts, it shows that American’s income is still going up. The data that we looked at from July to August showed incomes were up 0.6%, which doesn’t seem like much but on an annualized basis, that’s quite a bit. The BEA (Bureau of Economic Analysis) is another data point that we track. They back-tested state income data for the last 3 years and found that every state in the country, other than Illinois, is growing faster than they thought it was. When you compare that statistic with the Federal Reserve’s target of 2% or less, if your income is going up and the inflation is below the 2% Fed target, it says that we are doing just fine.
There’s a lot of negative news in the media right now that’s talking about how bad the consumer is. We consider ourselves to be like mechanics so when we hear news like that, we “look under the hood” so to speak. That’s what we’ve done with the consumer data. What we have discovered is that consumer confidence has risen about 4 points in September. All we’re hearing is negative news, but the data proves that it’s not true. Year-over-year basis of spending has gone up almost 1.5% after the 2nd quarter. Also, new home sales were up 7.1% month-over-month in August. So, as we’re talking about the possibility of the consumer numbers slowing down, in all actuality, it’s rising at a rapid pace. The data is there. When we say we’re like mechanics, that means we’re looking under the surface at the certain sectors to see where the spending is and as of right now, we’re liking what we’re seeing. Despite the negative news we’re staying optimistic.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.