The Independent Market Observer

Does a Busy Summer in the Economic News Mean a Busy Fall?

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Aug 30, 2018 3:06:33 PM

and tagged In the News

Leave a comment

economic newsAs we approach the end of summer (I know, not technically), it seems like it never really happened. During most summers, a lack of economic news reduces me to writing about lobster rolls. This summer, however, there was no shortage of things to write about.

A look back at summer 2018

Early in the summer, we had the prospect of “Italeave” as a populist party took control of Italy. We also had the start of the tariffs and trade wars, which have rattled the markets all summer. Then, the yield curve approached inversion, typically a signal of recession. There were reports that the deficit would soon be approaching $1 trillion. Plus, the housing market started to roll over on higher prices and rising interest rates. Finally, we had the Turkey crisis, which looked like it might morph into a general emerging markets crisis. We had more news this summer than in a typical year—and that leaves out the domestic U.S. political battles, which also rattled markets.

Despite all the worries and the news, markets continued to climb (at least here in the U.S.) to reach new all-time highs. Strong economic growth, repeatedly cited by the Fed; strong business and consumer confidence; and continued job creation all combined to keep the economy moving. We got repeated boosts, in fact, as worries failed to materialize. Italy did not threaten to leave the EU. Tariffs and trade wars have not led to general collapse. The yield curve has not inverted. The deficit is rising, but it has not affected interest rates. Turkey did not turn into a general crisis. And, most recently, the signing of a trade deal with Mexico suggests that that worry may subside as well.

As usual, many of the things we worried about simply didn’t happen. If we had spent the summer at the beach, we would have been better off. Lesson for the future! What, however, does this tell us about the fall? Should we head somewhere warm and ignore the news? Probably not.

A look ahead to fall 2018

We do have news coming up this fall that will likely challenge markets—and in a more sustainable way than we saw this summer.

First is the change in interest rates. With the Fed poised to raise rates two more times this year, a yield curve inversion is looking much more likely. With the deficit poised to actually crack $1 trillion sometime this fall, government finance will be back on the plate as well. And, the big one, with the midterm election season starting up next week, politics will become even more disruptive. It will be a busy fall.

Arguably, though, all of that can be dismissed as noise, just as things turned out to be this summer. The real news to watch will be economic. Does housing continue to slow? Do the tariffs actually start to do real damage, both to growth and to confidence, as they intensify? Does hiring slow further? All of these factors are what really determines how the economy acts and, therefore, what the financial markets do.

Fading tailwinds?

In other words, the fall is likely to be every bit as busy as the summer has been, maybe more so. Plus, the tailwinds that have kept us going during the summer may be fading. This is one of the things we need to watch.

Any way you look at it, we live in interesting times. I don’t think I will be writing about lobster rolls this fall, either.


Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics



New Call-to-action

Conversations

Archives

see all

Subscribe


Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®