Apple to Miss Targets, Japan GDP Tanks, Freight Index Down
In this week’s Steady Investor, we look at key stories and the questions surrounding their market impact, such as:
- Apple Inc. announces it won’t make sales targets due to coronavirus. Are more companies to follow?
- Japan posted abysmal GDP growth figures in Q4
- What key indicators show weakness?
- Steady rates for the foreseeable future
When Apple Inc. Warns, Investors Listen – Apple Inc. sent ripples through the market this week, being the first major corporation to announce it would miss sales targets as a result of the coronavirus. China is a major part of the supply chain for iPhone and other hardware production, and China’s growing middle class has been a key source of sales and revenue growth for Apple. China’s virtual lockdown on citizens and production facilities has stifled production and sales have ground to a near halt, forcing Apple to take the early step of declaring it would likely miss revenue targets.1 We expect more announcements like Apple’s in the coming weeks, as the outbreak persists.
Japan’s Horrendous Q4 2019– Japan posted abysmal GDP growth figures in Q4, showing a -6.3% contraction in the three months ending December 31, 2019. Japan has seen this move before, as the sharp decline in growth is arguably tied to the government’s decision to raise the national sales tax from 8% to 10%. Private consumption figures saw a sharp drop in the quarter as a result, as consumers stacked purchases ahead of the tax increase and went into saving mode thereafter. To make matters more difficult, the coronavirus outbreak is likely to dent Japan’s economy even further, as Japan has deep economic ties to China in tourism and production.2 With a Q1 2020 decline in GDP growth, Japan will have entered a technical recession.
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Key Leading Indicators Show Weakness – Transportation indices in the US have historically been fairly reliable economic indicators. If the economy is humming, goods are crisscrossing the country by truck, rail, air and sea. If economic activity is modest or flattening out, volumes tend to decline and the freight market shows weakness. That’s what we’re starting to see today. The Cass Freight Index posted its largest year-over-year decline since 2009, with shipment volumes plummeting -9.4% and expenditures dropping -8%.4 Market-watchers are especially concerned because the Freight Index was displaying signs of weakness even before the coronavirus outbreak, which means the weakness is likely to get worse before it gets better. Meanwhile, the Conference Board’s Leading Economic Indicator Index – which is widely viewed as a highly reliable predictor of future economic activity – has quietly declined in four out of the last five months.5 Are these all signs pointing to a peak in economic activity, that’s now turning over?
Steady Rates for the Foreseeable Future – Fed minutes from their previous two meetings, in December and January, indicate a committee that is largely content with interest rate policy given the backdrop of US economic activity. Fed officials have mentioned the coronavirus outbreak on several occasions, indicating to the market that the issue is being watched closely for any negative impact on global investment, spending, and trade. Fed Chairman Jerome Powell told lawmakers last week that the Fed will need to see “persistent and material” economic disruptions from China before the Fed would consider cutting interest rates in response to the crisis. Meanwhile, early signs point to the Chinese government and the People’s Bank of China “readying the cannon” of fiscal and monetary stimulus to re-invigorate the economy once the crisis abates.6 China’s stimulus could arguably lead to a bounce to global growth in the second half of the year, in our view.
There is no way to know exactly where the market
is headed or how these stories will pan out, but taking time to plan for your
financial future can give you peace of mind in times of uncertainty.
This preparation can help make a smooth and happy transition to the next chapter of your life. If you are planning on retiring in the next month, two months or half a year, you need to make sure you’ve considered some core factors and made decisions ahead of time.
To help you do this we have created our guide, “6 Secrets to a Happy Retirement.”7 If you have $500,000 or more to invest, get our free guide today. You’ll learn some of the most important “big picture” ideas that should be a part of your planning to help ensure a happy retirement.
2 The Wall Street Journal, February 17, 2020. https://www.wsj.com/articles/japans-economyshrinks-as-sales-tax-increase-cools-consumption-11581898410
3 ZIM may amend or rescind the “6 Secrets to a Happy Retirement” guide for any reason and at ZIM’s discretion.
4 The Wall Street Journal, January 16, 2020. https://blogs.wsj.com/dailyshot/2020/01/16/the-daily-shot-2019-saw-the-worst-drop-in-freight-shipments-in-a-decade/
5 The Conference Board Leading Economic Index, January 23, 2020. https://www.conference-board.org/pdf_free/press/US%20LEI%20-%20Press%20Release%20JANUARY%202020%20(c).pdf
6 The Wall Street Journal, February 19, 2020. https://www.wsj.com/articles/fed-minutes-could-provide-clues-on-economic-outlook-balance-sheet-11582108200
7 ZIM may amend or rescind the “6 Secrets to a Happy Retirement” guide for any reason and at ZIM’s discretion.
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