There Are Some Bright Spots in the Market

It certainly isn't hard to find negative headlines in the market these days. Trade tensions continue to escalate between the two largest economies in the world. We have had several major selloffs on announcements of new tariffs or broken off trade talks over the past few months. These have been followed by large rallies on word of new trade discussions or some lessening of previously announced trade measures. The impact tariffs and trade tensions are having on the global economy are becoming increasingly apparent. Industrial production in China just posted its worst monthly reading since 2002. Export dependent Germany, the main economic engine on the continent, posted slightly negative GDP growth for the second quarter. The U.K. saw its GDP shrink 0.8% in the second quarter. This is the first negative quarter for economic growth since 2012. It is looking increasingly likely that a 'no-deal' Brexit happens on Halloween as the new prime minister has staked his administration on getting the Europeans to give England a better deal or exit the EU without delay. Unfortunately, I don't see the EU offering anything much more than they have proposed, so a hard Brexit seems more and more a likely possibility that could roil global markets further in the months ahead. Stocks have already suffered their two biggest single day drops of 2019 here in August. The 3% across the board pullback on August 5th was primarily triggered by the unexpected announcement that the administration would apply new 10% tariffs to approximately $300 billion in Chinese goods. A slightly bigger drop occurred in the market this last Wednesday as the yield curve 'inverted' for the first time since 2007, signaling a potential upcoming recession on the horizon. Fortunately, some lessening of trade tensions on Friday led to a big rally that kept losses for the week manageable. We have seen the impact of slowing global growth and tariffs on Q2 results and guidance. This is especially true for the industrial and manufacturing sectors. Hit especially hard has been the Agriculture sector which has to deal with the brunt of Chinese trade retaliation, not to mention some horrid weather this year. This comes after years of falling agricultural commodity prices as it was. The second quarter report from Deere gave a great glimpse of that last week as the company is seeing significant fall off in agricultural equipment purchases as one would expect. Fortunately, the guidance cut was not as bad as some investors feared, and the stock participated in Friday's rally. While there are myriad worries in the market, there are some bright spots as well. The consumer continues to hold up well. The jobs market continues to be solid at the moment with wage growth near decade highs and the unemployment rate near the lowest in a half a century. In addition, despite the recent turmoil in equities, the S&P 500 is within 4% of all-time highs. The index has produced solid returns in 2019 even as the Dow and Russell 2000 remain near the same levels where they began 2018. I just can say this investor can't wait for the long hot days of summer to be over, and not just because I can return to my walk up in New York City after spending most of July and August in Miami.

There Are Some Bright Spots in the Market

We have seen the impact of slowing global growth and tariffs on Q2 results and guidance.

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