Third Quarter 2019 Executive Summary

Is a recession coming?   The truth is that no one, NO ONE, can accurately predict the exact timing of an economic downturn.  Economic indicators are helpful in predicting economic/market cycles, but as noted in our previous summary, rarely do they all point in the same direction.  

After a rocky third quarter, stocks finished Q3 roughly where they started, and Q4 has gotten off to a decidedly dismal start.  With October historically the most volatile of the year, and with no shortage of catalysts for upsetting the market, we expect continued volatility.  Trade tensions are wreaking havoc on manufacturing and business and consumer confidence, the impeachment saga dominates the news, and we are entering an earnings season which could bring disappointments.  We are at a critical juncture where events of the coming weeks and months will provide insight into whether we may be approaching an economic downturn.  While most indicators remain positive, elevated uncertainty is threating economic confidence.      

• Gross Domestic Product (GDP).  GDP, arguably the best measure of an economy’s overall health, declined in Q3, but remains positive.  The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2019 is 1.8%, following GDP growth in Q1 and Q2 of 3.1% and 2.0% respectively. These numbers, while declining, show moderate expansion.  Declining positive growth is somewhat concerning; however, not actually indicative of a recession.    
• Unemployment.The unemployment rate declined to 3.5% in September, a fifty-year low, with payrolls increasing. 
• Consumer Confidence.The Conference Board Consumer Confidence Index, which gives an indication of consumer attitudes and buying intentions, stands at 125.1, up from the previous quarter end’s 121.5 but down from August’s 134.2.  While confidence remains historically high; increasing concern over the U.S.-China trade war appears to be taking a toll.
• Consumer Price Index (CPI).  The CPI for All Urban Consumers (CPI-U), a measure of inflation which shows “cost of living” fluctuations, increased 0.1% in August, on a seasonally adjusted basis, after rising 0.3% in July.  For 12 months ending August, the CPI-U increased 1.7% before seasonal adjustments.  
• Earnings.  The estimated (year-over-year) earnings decline for Q3 2019 is -3.7% … if -3.7% is the actual decline for the quarter, it will mark the first time the index has reported three straight quarters of year-over-year declines in earnings since Q4 2015 through Q2 2016. The estimated (year-over-year) revenue growth rate for Q3 2019 is 2.8%
• Housing.  U.S. housing starts jumped 12.3% in August from July, the highest level since June 2007, supported by lower mortgage rates.  Existing home sales and prices also increased. 

We remain cautiously optimistic for continued domestic growth during the remainder of the year, albeit at a slower pace.   Weak global growth and trade tensions are likely to continue to weigh on the economy, and we anticipate continued market volatility; therefore, as always, we will remain focused on fundamentals and cultivate our long-term investment strategy.

Someone is sitting in the shade today because someone planted a tree a long time ago. - Warren Buffett

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Executive Summary Sources:

https://www.cnbc.com/2019/09/30/dont-expect-calm-markets-in-october-usually-a-month-for-wild-swings.html

https://www.frbatlanta.org/cqer/research/gdpnow

https://www.bea.gov/data/gdp/gross-domestic-product

https://www.conference-board.org/data/consumerconfidence.cfm

https://www.bls.gov/news.release/pdf/empsit.pdf

https://www.cnbc.com/2019/10/04/jobs-report---september-2019.html

https://www.census.gov/construction/nrc/pdf/newresconst.pdf

The views expressed represent the opinion of Asset Management Financial Solutions, Inc. (“AMFS”) and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and AMFS’s view as of the time of these statements.  Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.