Facts:
- PMI contracted again, with the index reading to 47.8%.
- 2nd Quarter GDP was 2%, according to the updated 3rd estimate.
- Unemployment remained at 3.5%.
- The S&P 500 (C Fund) increased 1.87% during the month of September.
Assessment:
- PMI has contracted for the 2nd consecutive month. This is on the heels of a 31 month expansion hot streak. Likely the result of trade wars. Will keep an eye on it.
- 2% quarterly GDP is just nothing to get excited about, but also not terrible.
- Unemployment dropped to yet another historic low. A level not seen in over 50 years.
- The S&P 500 performance is still volatile, as is everything media influenced. But YTD is up 20.54%.
Bottom Line: Some extremely divergent economic data to digest.
Extremely low unemployment is great news, but PMI which represents the manufacturing and supply of various materials is slowing which suggest a low demand for new materials, which means manufacturers are sensing that people are not buying as much stuff. That’s not so good.
But, the biggest bombshell news, and the most unsettling was reported in this article from the Washington Post. I rarely take any news post as fact, so I double checked this with an economist at Ginnie Mae and with an investment analyst in New York.
To summarize, the seeds are being sown for another 2008 meltdown. To quote the article – “In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to data from the Urban Institute. Taxpayers are shouldering much of the risk, while a growing number of homeowners face debt payments that amount to nearly half of their monthly income, a threshold many experts consider too steep. Roughly 30 percent of the loans Fannie Mae guaranteed last year exceeded this level, up from 14 percent in 2016, according to Urban Institute data. At the FHA, 57 percent of the loans it insured breached the high-risk echelon, jumping from 38 percent two years earlier.”
This does NOT mean gloom and doom will happen in the near term – it doesn’t even have to happen at all. But, this does mean that should the economy start slowing, incomes go down and unemployment rises, then this will just accelerate the decline.
This is not justification for panic selling. I would encourage staying in the market, however with a slightly moderated posture, again.
I’m keeping an eye on things. Just make sure you keep an eye on these reports.
I would suggest anyone who will be deriving income from their portfolio over the remainder of this year to proceed with caution. If you are on the brink of retirement, consult with me before you position your TSP too aggressively. Email me stephen@stephenzelcer.com Check out the 2 page report below. DON’T JUST LOOK AT RATE OF RETURN. Always view the target return of each portfolio in context of its ranges of fluctuation.
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