Markets experienced a push-and-pull last week between data indicating strong economic growth and lagging performance from several tech stocks' earnings reports.[1] Domestic indexes had mixed results, as the S&P 500 gained 0.61%; the Dow was up 1.57%; and the NASDAQ dropped 1.06%.[2]International stocks in the MSCI EAFE had more of an uptick, gaining 1.32% for the week.[3] 

On Friday, July 27th, we received the initial reading of 2nd quarter Gross Domestic Product (GDP). The report indicated that the economy grew at a 4.1% annual rate between April and June. This reading was the fastest pace in almost 4 years, and significantly higher than 1st quarter growth.[4] Markets, however, had a relatively mild reaction to the GDP data due to rumors predicting even higher results.[5]

Let's dig beyond the headline GDP growth number to see what else it tells us about our current economic circumstances. 

2nd Quarter GDP Details

  • The tax cut helped drive growth.The recent $1.5 trillion tax cut contributed to the latest GDP performance.[6] Both consumers and businesses spent more in the 2nd quarter.[7] Some economists believe this result will not last; without further tax cuts, consumers and companies won't have additional funds at their disposal.[8]
  • Trade tension affected GDP.  This year's ongoing trade drama impacted the economy during the 2ndquarter, but perhaps not the way you might expect. Many soybean farmers tried to get ahead of coming tariffs by shipping their crops to China earlier than normal. This move helped GDP increase between April and June.[9]
  • Inflation slowed. When examining inflation, the Fed uses the personal consumption expenditures (PCE) without food and energy, also known as the core PCE. The 2nd quarter reading was 2%, down from 2.2%. Between healthy economic growth and solid inflation numbers, the Fed is likely still on track for two more rate hikes in 2018.[10] 

Seeing strong growth this late in an economic expansion is good news. However, now we will have to see whether the growth can continue at this rate. When discussing the GDP readings, President Trump predicted even better results in future quarters. Some economists, on the other hand, believe trade wars and consumer spending could provide headwinds.[11] 

We can't predict the future, but we do know that economic fundamentals continue to be strong.[12] This week, we will receive a number of new readings, from manufacturing to employment to motor vehicle sales, and earnings season will roll on.

If you would like to discuss any of these details and how they may impact you, we're ready to help.

ECONOMIC CALENDAR

  • Tuesday: Personal Income and Outlays, Consumer Confidence
  • Wednesday: Motor Vehicle Sales, ADP Employment Report, PMI Manufacturing Index, ISM Mfg Index 
  • Thursday: Factory Orders, Jobless Claims
  • Friday: Employment Situation, International Trade, PMI Services Index, ISM Non-Mfg Index

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Gross Domestic Product (GDP) is a measure of output from U.S. factories and related consumption in the U.S.  It does not include products made by U.S. companies in foreign markets.

The Federal Reserve System (also known as the Federal Reserve and, informally, as the Fed) is the central banking system of the United States. The Federal Reserve System is composed of 12 regional Reserve banks which supervise state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Funds Rate), an

important benchmark in financial markets used to influence the supply of money in the U.S. economy.

Inflation is the rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market. 

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

[1] www.reuters.com/article/us-usa-stocks/tech-stocks-weigh-on-wall-street-idUSKBN1KH1BH
[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US 
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[3] www.msci.com/end-of-day-data-search
[4] www.cnbc.com/2018/07/27/us-gdp-q2-2018.html
[5] www.cnbc.com/2018/07/27/us-stocks-economy-earnings.html
[6] www.reuters.com/article/us-usa-economy/trump-hails-growth-as-one-offs-and-consumers-boost-economy-idUSKBN1KH0B7
[7] www.cnbc.com/2018/07/27/us-gdp-q2-2018.html
[8] www.reuters.com/article/us-usa-economy/trump-hails-growth-as-one-offs-and-consumers-boost-economy-idUSKBN1KH0B7
[9] www.reuters.com/article/us-usa-economy/trump-hails-growth-as-one-offs-and-consumers-boost-economy-idUSKBN1KH0B7
[10] www.reuters.com/article/us-usa-economy/trump-hails-growth-as-one-offs-and-consumers-boost-economy-idUSKBN1KH0B7
[11] www.cnbc.com/2018/07/27/us-gdp-q2-2018.html
[12] www.cnbc.com/2018/07/27/us-stocks-economy-earnings.html