Happy Veterans Day!
We wanted to start by saying thank you to all the veterans who have served and their families for all the sacrifices they’ve made for the sake of our freedom and our country. We would like to make a special shout out to our very own, Felicia Ludlum, for her service. We thank you all and are grateful for your service!
The big news for tomorrow is that President Trump will be speaking to The Economic Club in New York. As a result, we will hopefully get a better idea of what the club’s stance is on the updated trade war talks. Last week, they were positive and then on Friday, the president said that he didn’t want to agree to some of the terms that the Chinese made. The market then traded back a little bit but soon after, came back up. It’s still a constant back and forth. Tomorrow, President Trump will be speaking and hopefully give some clarity on what’s to come. The trade war is not only impacting the U.S. and China but it’s also making an impact globally. Germany is technically now in a recession after two quarters of a declining GDP. However, on the flip side, some good news coming out of France is that for the first time in years they are now the region’s economic growth engine. All of this makes for interesting news to pay attention to.
The Trade War Continues
Part of the reason things have been more positive lately is that we’re getting a little bit more leverage, coming up. The last round of tariffs that we’re going to put on the Chinese, if we do, would be in December at a value of around $156 billion, mostly on electronics and toys. That would hit the Chinese hard considering the amount of those items that they produce at this time of year. Part of the reason we’re seeing movement on their side is that they know, within a month or so, they’ve got another round coming up that would hit them significantly. On Wednesday Fed chairman Jerome Powell is going before congress and the joint economic committee. This will be his first time doing this because last year when this meeting was scheduled it had to be canceled because President Bush passed away. You’re going to see them have a very in-depth discussion up on capitol hill about how the economy is looking. So, in addition to the things going on internationally, we’ll also see a lot of domestic things come out as well.
The Actions of Jerome Powell
Over the last year the job approval rating of Jerome Powell, especially on capitol hill, has gone way up. This time last year everyone was kind of thinking he was making big mistakes. Since then, rates have been cut three times and we’ve seen the yield curve no longer calling for a recession. This week the 10-year is sitting at 1.93% and the 3-month bond is at 1.5%. The 10-year yield has gone up 40 basis points over the last month while the short end has come down about 20 basis points. That shows that the bond market is saying Jerome Powell’s actions have been good and we may be avoiding another recession.
We are hoping that some of the China trade deal helps in the earnings section. The 3rd quarter is about to end, and the market is now expecting a 1.3% year-over-year decline in the third quarter. A slight drop in the 4th quarter would give us a full year of a 0.7% increase in earnings. While that number is good and better than a decrease, it’s still doesn’t show a lot of strength, especially when the market has been up so much. The S&P 500 looks very expensive from an earnings standpoint. Historically speaking, 16.4 times earnings is what the traditional price is and right now it’s trading at around 18.1, so it’s a little expensive. If we get positive news in the 4th quarter on trade and good news on interest rates, you could see earnings pop in the 4th quarter and give us a little surprise and a positive outlook going forward. Anytime the president or the Chinese delegation talk on trade or the Fed chairman talks, we pay attention because that truly moves the market, or at least that’s been the case for 2019.
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.
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