Facts:
- The S&P 500 had a HUGE drop of 3.7%.
- PMI, again, had explosive growth, up almost a full percent from last month to 60.8%.
- The 2nd estimate for the 4th quarter’s GDP is 2.5%.
- Unemployment was stable at 4.1%. It’s been at 4.1% for 4 months.
Assessment:
- If we could ignore the economic threats from the White House, and just focus on the the economy, we would see that fundamentally, the U.S. economy is solid.
- PMI continues it’s impressive streak, performing above-average (above the 50% mark – this month above the 60% mark) for the past 15 months.
- Unemployment has been holding stable for the past 4 months, as has small steps of improvement consistently over the past 2 years.
- GDP’s Q4 numbers are healthy, but less than what economist hoped to see (over 3%).
- The S&P 500 drop, as terrible as it was, has not even erased it’s gains for the year. Currently it is up 1.8% YTD, which is easily outpacing all other TSP funds.
Bottom Line:
Last month I admitted two points of concern:
- The low GDP. GDP levels are healthy, but less than expected. It’s not trending down. But if I see a trend of decline, I will let you know.
- I am deeply concerned about the most recent spending agreement reached on February 8th. Since I have not seen further reporting on that, it’s hard to monitor it’s impact.
This month I add a new concern of Trump’s Tariff talk. I’m not an economist, but the little I know about logic is that people gravitate towards cheaper labor and materials. American companies do that to keep their expenses down and charge the consumers less, thus staying competitive. With a tariff, American companies will have to pay more for labor and materials. That means they won’t be able to charge consumers less, which means the price of goods will go up, leaving all of us consumers with less money in our pockets – unless we consume less. If we consume less, corporations will have less money in their pockets which will either mean they will either produce less or produce the same with less employees (meaning jobs will be lost). Overall corporate profitability will decline which will negatively effect the value of their stock.
Yikes.
To say the least, The Presidents threats of Trade Wars and Tariffs are VERY alarming. I don’t know how seriously we should take his comments because he seems to rescind his words every other day.
The recent new talks of balanced trade with Canada and Mexico are very uplifting, and even talks of trade with North Korea is unprecedented.
Yes, the market will respond negatively to poor policy reports but once the news clears, we will see the fundamentals shine and surge. Remember, we’re still in an excellent corporate environment – all supporting solid S&P performance.
I will wait and see if in fact Trump acts on any of this. Until then, since the fundamentals are in place, I have classified this economic environment as “Early-Mid” point of the economic cycle.
Still no I or F or S fund exposure – THANKFULLY. I’m sure you noticed the I & S decline was steeper than the C. Sure, the I might do well at times, but consistently shows it’s rewards NOT justifying it’s risk.
Be sure to view all 3 pages of the embedded report below. The TSP portfolios below carry the greatest return for the least amount of risk in this economic environment. Remember, DON’T JUST LOOK AT RATE OF RETURN. Always view the target return of each portfolio in context of its ranges of fluctuation.
