Weekly Market Commentary, October 1, 2019

October 1, 2019  | By Robare & Jones

The Markets

Impeachment proceedings led news coverage most of the week, but other economic data may be more impactful on portfolios. As the accompanying chart shows, consumer spending rose just 0.1 percent in August. The below-expected results indicate weakness from trade, and business spending may be slowing consumer confidence, too. Manufacturing data from Europe remains in decline.

Global stocks dipped lower as optimism on trade has given way to a desire for meaningful results. Last week, the S&P 500 slid 1.0 percent. The MSCI ACWI index of global stocks also declined 1.0 percent. The Bloomberg BarCap Aggregate Bond Index rose 0.4 percent on concerns economic growth was slowing.

This week’s employment report will provide the next major economic insight into the U.S. economy. For investors, the most important event in coming weeks will likely be the U.S.-China trade talks scheduled for October 10-11. Investors expect significant progress at this meeting or in the near future so a deal can be reached and reduce the uncertainty contributing to recent economic weakness.

Data as of 09/27/2019 1-week YTD 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) -1.0% 18.2% 1.6% 11.1% 8.4% 10.8%
Dow Jones Global ex-U.S. -1.2 9.2 -4.3 3.7 0.7 2.3
10-year Treasury Note (Yield Only) 1.7 NA 3.1 1.6 2.5 3.3
Gold (per ounce) -0.8 16.3 25.7 3.9 4.1 4.2
Bloomberg Commodity Index -1.1 2.1 -7.6 -2.4 -8.2 -4.5

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Download Market Data Table

 

Impeachment and the Markets

Your portfolio may be the area of your life least affected by the impeachment investigation of President Trump by a number of committees in the House of Representatives. As a citizen, you may spend more time keeping up with the news; as a neighbor, you may need to be more careful about what you say; but, as an investor, the effect on your portfolio may be much narrower.

Historically, during the two previous investigations, impeachment wasn’t a crucial issue for stock markets. During the Watergate investigation, markets dropped, but they were dropping anyway as inflation and an oil embargo had a major effect on markets. When President Clinton was impeached, markets rose and fell, not on the political news, but on the strengths and weakness of the tech market.

There are three major areas where government action or inaction could meaningfully affect your portfolio: trade, taxes, and regulation.

Trade policy is the most important issue likely to be affected by impeachment. Impeachment raises the risk the Chinese will stall negotiations in order to seek a better deal with the next president. It also raises the risk Congress will not approve a trade deal because the politics of impeachment push trade lower on Congress’ priorities list. As the weak consumer data spending referenced above show, the uncertainty from trade negotiations has started to move from affecting businesses to affecting consumers. If China perceives it can get a better deal from the next president or that Congress won’t approve any deal, it may further stall negotiations. Further delays mean additional economic slowness.

While trade is worth watching, the other issues aren’t likely to see much change. The Trump tax cuts, which lowered corporate taxes, are likely here to stay. The global trend toward lower corporate tax rates is firmly established. Taxes may go up slightly, but countries need jobs more than they need revenue, and corporate taxes continue to decline. Just this week, France and India announced plans to lower their corporate rates. Corporate taxes will likely remain near current levels.

Regulation will likely rise if the Democratic nominee assumes the presidency after the next election. Impeachment does little to change this as the next election is expected to be tight regardless of who wins.

Our market will likely be the same. Earnings growth, corporate strategy, trade policy, consumer demand, and productivity growth will matter to your portfolio. Political news, not as much.

A final word of caution: The biggest portfolio mistakes in recent years have been from investors who think the stock market and their political views are closely related. U.S. stocks have done well under President Trump, just as they did well under President Obama. When looking at your portfolio, keep your focus on the plan, not the politics.

 

Fun Story

Looking to Get Away from the Television?
Rather than a fun story, here’s a story about fun. Americans continue to spend more on outdoor recreation as improving wage gains have made vacations and other activities more affordable. Outdoor recreation accounts for 2.2 percent of GDP (Gross Domestic Product) and grew faster than the overall economy in 2017. Mountain states and the four “corner states” – Alaska, Hawaii, Maine, and Florida – benefit the most. More outdoor activity may be just the thing to avoid extra exposure to your television during what promises to be an intense news cycle.