Emerging markets surge, deficit spikes, China still strong
In this week’s edition of steady investor, we take a look at this week’s top news stories and what they could mean for the market:
- Why are investors flocking to Emerging Markets?
- The U.S deficit reached new heights. How could this affect the economy?
- Since 2013, economists and market prognosticators have been warning about China’s imminent economic hard landing. What is the current outlook?
Read on to get the details:
Risk On? In last week’s Steady Investor, we pointed out a trend of cyclical stocks outperforming the broad stock market over the last few weeks – following the technical bear market that ended on December 24. There’s another category that investors have been flocking to in recent weeks: Emerging Markets. Much like cyclicals, Emerging Markets tend to do well when the global economy is growing at a brisk pace and credit conditions are favorable. But these categories also might be performing well simply because investor perception has improved in recent weeks – fears of a global recession seem to have receded somewhat following a truce (but not a deal) with China and the Federal Reserve’s pause on interest rates. Indeed, central banks around the world seem to have pivoted to a more cautious stance, ready to intervene if economic conditions weaken. Investors are responding in kind, having moved $86 billion into emerging-market stocks and bonds so far in 2019, a figure that already outpaces investment over the final three quarters of 2018.1
Should Headlines Influence Your Investment Decisions?
While investor perception has shifted to the positive surrounding fears of a global recession, investors still seem wary that the market could take a negative turn.
But what headlines should cause you to worry? In our view, when it comes to investing, letting the media noise sway your judgment can make you vulnerable to costly financial mistakes.
To help you avoid falling prey to this mistake, we are offering you our just-released guide “Should Headlines Influence Your Investment Decisions.”2 In this guide, we discuss three behavioral tendencies that we believe investors should keep in mind if a headline makes you edgy or nervous.
If you have $500,000 or more to invest, click on the link below to get your free copy today!
Download Our Guide, “Should Headlines Influence Your Investment Decisions?2”
Deficits, Deficits, and More Deficits – The United States continues to spend far more than it makes. From October 2018 to January 2019 – which represent the first three months of the government’s fiscal year – the budget gap widened to $310 billion compared to the $176 billion figure just a year earlier. This marks a deficit increase of a staggering 77%. Over the last 12 months, the budget deficit was just shy of $1 trillion as the federal government’s revenues fell 1.5% while spending rose 4.4%. The last time the deficit was that large was in 2013, when the country was still spending its way out of the Great Recession. At issue today is the tax cut coupled with the bi-partisan budget resolution to spend 9% more in the first four months in fiscal 2019 from the previous period. More spending was approved for the military, veterans’ affairs, and interest on existing debt.3 Meanwhile, America’s trade deficit also continues to grow, despite efforts to use tariffs to reduce or eliminate it. According to the Bureau of Economic Analysis, the United States’ monthly international trade deficit increased from $50.3 billion in November 2018 to $59.8 billion in December. Breaking down the numbers, the United States is a net exporter of services but a net importer of goods – which makes sense. Goods can often be made more cheaply abroad than in the U.S., and the U.S. is a service and technology-based economy. The goods deficit increased $9.0 billion in December to $81.5 billion, while the services surplus decreased $0.5 billion in December to $21.8 billion. The goods deficit of $81.5 billion is the largest in U.S. history.4
Still Waiting for China’s Economic “Hard Landing” – Since about 2015, economists and market prognosticators have been warning about China’s imminent economic hard landing. It hasn’t come. While China does face issues of mounting debt and property vacancies, the state has managed to keep the economy moving with a combination of bailouts, cheap loans, increased spending, and coming soon, new tax cuts, fee reductions for businesses, and increased bank lending (+30%) to small and private companies. Taken together, China has decreased its GDP growth estimate for 2019 to 6% from 6.5%, following its 6.8% expansion in 2018. 5 Though state-issued data from China is hardly reliable in terms of accuracy, it’d be difficult for the second largest economy to hide economic contraction if it were actually occurring. Much of China’s economy is built upon taking and fulfilling orders from the rest of the world.
Loosening Up – in a marked shift that speaks to the times, investment banking firm Goldman Sachs announced this week that it is easing its dress code standards for all employees.6 This move arguably makes sense, since it’s reported that 75% of Goldman’s employees were born after 1981 (making them Millennials or Gen Z’ers). As for what type of dress would be acceptable going forward, there weren’t many specifics: “All of us know what is and is not appropriate for the workplace,” the memo said.
Should these headlines influence your investment decisions? It can be hard not to go on the defense, especially when many of the headlines are pushing you to react with fear over potential volatility. But, don’t let this media noise sway your judgment and make you vulnerable to potentially costly financial mistakes.
To help you stay steady and avoid costly mistakes, we are offering you our just-released guide, “Should Headlines Influence Your Investment Decisions?7
In this guide, we discuss three behavioral tendencies that we believe investors should keep in mind if a headline makes you edgy or nervous.
If you have $500,000 or more to invest, click on the link below to get your free copy today!
2 ZIM may amend or rescind the Guide “Should Headlines Influence Your Investment Decisions?” for any reason and at ZIM’s discretion.
3 The Wall Street Journal, March 5, 2019. https://www.wsj.com/articles/u-s-budget-gap-widened-in-first-four-months-of-fiscal-year-11551812519?mod=djem10point
4 The New York Times, March 6, 2019. https://www.nytimes.com/2019/03/06/us/politics/us-trade-deficit.html
5 The Wall Street Journal, March 4, 2019. https://www.wsj.com/articles/china-expects-2019-economic-growth-of-6-to-6-5-11551748675?mod=djem10point
6 Reuters, March 6, 2019. https://www.reuters.com/article/us-world-work-goldman-sachs/suits-and-ties-now-optional-goldman-sachs-hedges-dress-code-idUSKCN1QM283?mod=djem10point
7 ZIM may amend or rescind the Guide “Should Headlines Influence Your Investment Decisions?” for any reason and at ZIM’s discretion.
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