Posted September 4, 2019
In last month’s client letter, our president Forrest Bell, CFP® wrote about Fed Chairman Powell’s five favorable U.S. economic conditions: strong job growth, increasing wages, low interest rates, low inflation, and healthy consumer spending. As we move into September, these areas of strength still apply. On Friday August 30 the U.S. Commerce Dept. reported that consumer spending in July rose 0.6% exceeding economists’ expectations. The department also reported that consumer spending increased at an annualized rate of 4.7% in the spring quarter, the fastest quarterly pace in nearly five years.
The Rush of Overseas Investors and Low Gasoline Prices
Also, on August 30, The Wall Street Journal (WSJ) reported that overseas investors are rushing into U.S. assets because they have offered better returns this year and are perceived to be a relative safe haven. This weekend, the WSJ reported that Labor Day gasoline prices are the lowest in three years, putting more money into consumers pockets. James Hamilton, economics professor at the University of California San Diego, writes that since 1973, the U.S. has not had a recession that was not accompanied by a sharp run up in oil prices. This condition does not exist today.
The Trade War Escalation
The U.S. trade war whipsawed stock markets in August, which was only the second month this year that stocks ended in the red. Investors were encouraged by a Chinese Government statement last Thursday that its penalties on American products are adequate and that no further escalation is necessary, which suggests that Beijing might be pausing in the punch-counter-punch cycle of tariff increases. As of this writing, the current administration proceeded with its trade war escalation by adding new tariffs on September 1. The best outcome for investors: U.S. – China ZERO TARIFFS.
The Bond Market Success
For bond investors, 2019 has been a dream. Bonds have had their best year since 2002. When bond yields fall, the market prices for bonds increase. In less than a year, the benchmark U.S. 10-year treasury has dropped from a yield of 3.25% to 1.45%. This dramatic drop in yields has caused a significant bond market rally. We are happy to report that all our bond positions in client accounts are positive for 2019 ranging from a high of 10.07% year-to-date in the taxable category to a low of +2.84% in the tax-free category.
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