Macro Musings August 2019
CHARTING THE COURSE 2019
- The latest MACROCAST™ score remains at a level that suggests a low risk of both
a recession and major bear market.
- Every August, we “Chart the Course” by looking at key charts focused on the most important trends in the economy and markets. We find that the data in many of the following charts is consistent with what we see in MACROCAST™. We hope you enjoy these, and we will publish our next traditional Macro Musings at the end of September.
CHARTING THE COURSE: MACROCAST™
MACROCAST™ is signaling a low probability of a major bear market. According to the model, there is a low probability of recession and/or a major bear market. The average score in 2019 is lower than the past two years, a development we are monitoring carefully.
CHARTING THE COURSE: THE ECONOMY
Solid jobs data. Initial claims for unemployment tend to rise before a recession begins. Current data remains near historic lows.
Heavy truck sales suggest no recession. Truck sales dropped sharply before the last four recessions. They are still in an uptrend. (from Sentimentrader):
Weakness in housing, but nothing overly concerning. Housing starts and permits peaked in early 2018. They have trended lower since then but should improve thanks to lower mortgage rates (from Tim Duy):
CHARTING THE COURSE: THE YIELD CURVE
Yield curve inversions have a long lead time before the economy turns south. The yield curve turns negative or “inverts” when short-term interest rates rise above long-term interest rates. This often happens before a recession, but the lead time can be years. Last week, the 2-year treasury bond briefly rose above the 10-year bond, but historically, the market has produced further gains after the yield curve inverts (from Fundstrat):
CHARTING THE COURSE: THE CONSUMER
Households are in excellent shape. Thanks to a bull market in stocks and a recovery in housing, the net worth of US households is at a record high (from JP Morgan):
And their debt burden remains manageable. The average household has low debt obligations relative to their income. This suggests interest rates could rise or consumers could take on more loans before it becomes a major issue.
Both developments helped in pushing retail sales to another all-time high. This is crucial, since consumers make up two thirds of the economy. Retail sales typically flatten before a recession begins.
CHARTING THE COURSE: CENTRAL BANKS
Central banks across the globe are cutting rates. The key central banks, highlighted below, are in easing mode. The countries raising rates the most have smaller economies (from the New York Times):
The headlines are negative, but the selloff hasn’t been that bad. Despite talk of trade wars and yield curve inversions, the market selloffs in 2019 have been quite ordinary (from Bianco Research):
However, we’re entering a seasonal period that tends to be the most volatile. The upcoming three months have had more large market swings than any other period (from Nautilus Research):
CHARTING THE COURSE: THE TRADE WAR
The tariffs on China could escalate. If all of the promised tariffs go through, the US will have the second largest amount of imposed tariffs out of all the major economies (from Deutsch Bank):
Concerns about future trade policy have hurt CEO expectations. Although the direct impact on the economic output has not been large (yet), CEOs are worried, and that could negatively impact future business investment (from Schwab):
The chart(s)/graph(s) shown is(are) for informational purposes only and should not be considered as a suggestion of any investment recommendation, investment strategy, or as an offer of advice to buy, sell, or exchange any investment product or investment vehicle. Past performance may not be indicative of future results. While the sources of information, including any forward-looking statements and estimates, included in this (these) chart(s)/graph(s) was deemed reliable, Corbett Road Wealth Management, Spire Wealth Management LLC, Spire Securities LLC and its affiliates do not guarantee its accuracy.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions of Spire Wealth Management LLC, Spire Securities LLC or its affiliates.
All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. MACROCASTTM is a proprietary index used by Corbett Road Wealth Management to help assist in the investment decision-making process. Neither the information provided by MACROCASTTM nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The phrase “the market” refers to the S&P 500 Total Return Index unless otherwise stated. The phrase “risk assets” refers to equities, REITs, high yield bonds, and other high volatility securities. Past performance is no guarantee of future results.
Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company, Spire Securities, LLC, a Registered Broker/Dealer and member FINRA/SIPC