GDP Below 2%, Brexit Extended, Fed cuts rates
In this week’s Steady Investor, we look at key stories and the questions surrounding their market impact such as:
- U.S. GDP falls below +2%
- The Federal Reserve cut interest rates for the third time in 2019
- The Brexit deal failed to pass through Parliament by October 31
- Big tech companies like Google, Amazon, and Facebook are facing more scrutiny about regulation
Third Quarter U.S. GDP Falls Below +2% – In the “advance” estimate for U.S. third quarter GDP, the Bureau of Economic Analysis (BEA) found that the U.S. economy expanded at a +1.9% annual rate. This marks a slight decline from the 2% GDP growth notched in Q2, but perhaps more importantly relays the signal that the U.S. economy may be back to “muddle-through” growth. According to the BEA, the uptick in GDP growth reflected positive contributions from personal consumption expenditures (PCE), federal government spending, residential fixed investment, state and local government spending, and exports. The main – and arguably most important – detractor from GDP was business investment. U.S. economic growth going forward is likely to be a tug-of-war between the U.S. consumer and virtually everything else. Business investment, manufacturing, credit, and other leading indicators have been trending weaker for some time now, as uncertainty over the trade war and the longevity of the economic cycle wears on corporate America.1 Orders for durable goods fell in September in the U.S., and business activity across the world from Europe to Japan were flat and negative, respectively.2 Meanwhile, China posted sub-7% GDP growth in Q3, its lowest rate of expansion since 1990.3
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The Federal Reserve Cuts Interest Rates, Signals Pause – As expected, the Federal Reserve cut interest rates for the third time in 2019, but in doing so made clear to the market that it would hold off on further cuts unless the economy decelerated sharply from here. The Fed sees the U.S. economy expanding modestly and believes that a healthy consumer – fueled by a strong labor market – should be enough to continue growth moving along for the balance of the year and into next. The fed funds rate now sits at a range between 1.5% and 1.75%, and the Fed reiterated that it would step in for further stimulus if warranted. In our view, this rate cut is unlikely to help reaccelerate cyclical growth, but may offer additional support to equities as investors search for yield. The committee voted 8-2 to lower interest rates, with the two dissenters preferring to keep rates steady.6
Brexit Stakes Just Got Higher – The effort to pass a Brexit deal through Parliament by October 31 failed, and the European Union extended the deadline to January 31. But there was a victory secured in the brutal process, and it went to Prime Minister Boris Johnson. The Prime Minister was able to secure a general election set for December 12, the consequences of which will be immense for Britain. Should Prime Minister Boris Johnson emerge victorious, he will earn five years in office and surely have the mandate needed to pass Brexit through Parliament. If Johnson loses, he will be the shortest-serving prime minister since 1827.7 The opposition arguably faces an uphill battle, as Labour and Liberal Democrats both have support of ‘Remain’ voters but risk splitting the vote.
The Biggest Names in Tech Double Down on Lobbying Efforts – Big tech companies like Google, Amazon, and Facebook had their heyday of lax regulation for the better part of the entire economic expansion. But those days may be nearing an end. As the biggest names in tech come under the triple-threat scrutiny of the Federal Trade Commission, the Justice Department and state attorneys, they are responding by upping the ante on lobbying dollars spent in Washington. Lobbying expenditures by Facebook, Amazon, and Apple are set to hit records in 2019, with Amazon’s $12.4 million making it the top spender.8 Amazon and Facebook are now the top corporate lobbyists in the United States, outstripping even defense contractors.
There is no way to know exactly where the market
is headed or how these stories will pan out, but finding the right investment
strategy can make a huge difference when managing the highs and lows of the
market. To help you learn more about strategies that cater to different
investment objectives, we have created our Dean’s List of Investment
Our Dean’s List describes five of our investment strategies that are ranked in the top 7% of their respective classes according to Morningstar (as of 9/30/19).10 If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could potentially benefit you.
2 Reuters, September 26, 2019. https://www.reuters.com/article/us-usa-economy/us-business-investment-downturn-could-pressure-slowing-economy-idUSKBN1WB1PV
3 Financial Times, January 19, 2016. https://www.ft.com/content/e6b04734-bdbb-11e5-a8c6-deeeb63d6d4b
4ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
5 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
6 The Wall Street Journal, October 30, 2019. https://www.wsj.com/articles/fed-cuts-rates-by-quarter-point-11572458556?mod=article_inline&mod=hp_lead_pos5
7 The Wall Street Journal, October 29., 2019. https://www.wsj.com/articles/u-k-opposition-to-back-boris-johnsons-call-for-election-11572347134?mod=article_inline
8 The Wall Street Journal, October 28, 2019. https://www.wsj.com/articles/tech-firms-ramp-up-lobbying-as-antitrust-scrutiny-grows-11572255000?mod=djem10point
9ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
10 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
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