Category: Uncategorized

by Franklin J. Parker, CFA

Buckle up, its Fed week!

Investors are expecting a rate cut at this meeting, followed by a series of cuts into next year — with an expectation for rates to end up around 3.25% by end of summer 2026. Some data last week may make this a harder decision than investors would like, and markets will be watching Powell’s press conference very closely. If Powell expresses any doubt about the future path of cuts, that will likely push markets around.

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Other than the Federal Reserve meeting, there is not much data on tap. Investors are wrapping up their years and getting their portfolios in position for taxes and quarter-end window dressing. As I have repeatedly discussed, my view is that a recession is brewing out there, though markets seem not to care. I am urging investors to evaluate their portfolio holdings in light of that likelihood.

Chart of the Week

There has been lots of talk about the “white collar recession” brewing as companies introduce AI and have need of fewer human workers. October’s spike in job cut announcements was taken as a sign that this has finally come to pass. However, in context (with COVID layoffs, for example), October’s jump was negligible. It was however, part of a larger trend in 2025 — companies have increased layoffs, and this may be an indication of normal economic slowing ahead of a recession.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Ambiguity is still the main theme for markets today.

Earnings season is over, with companies growing earnings by about 13% over this time last year. Those are very solid earnings, yet we’ve seen markets trade mostly sideways. This is largely due to the underlying economic data, which has been getting progressively worse. Consumer confidence, business indexes, inflation, and unemployment have all sapped investor confidence.

This week we see important data on personal expenditures, consumer debt, and data on the health of the services sector. Early indications of black Friday retail sales were positive, but whether that momentum is maintained into the end of the year remains to be seen.

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The Federal Reserve meeting is approaching with the FOMC somewhat divided over whether to continue the path of interest rate cuts into the end of the year. Chair Powell has indicated that the data they see is murky with the risks of inflation still lingering, yet several committee members have indicated they want to continue cutting. Markets see a 90%+ chance that the Fed cuts at their December meeting — a change to that expectation could push markets around quite strongly.

Overall, I am still cautious. The underlying economic data has worsened despite strong corporate earnings. That said, a rally into the end of the year would be a normal seasonal occurance, so we do have that tailwind for markets. 2026, however, may get interesting very quickly.

Chart of the Week

One challenge over the past month and a half has been the delay in data releases (or their outright cancellation). Corporate earnings, therefore, have taken on a more important role than normal. Looking more closely at corporate earnings we see that, despite strong earnings growth, the US stock market is more expensive than about 90% of its history. That should give investors pause about future returns as high valuations tend to foretell lower future returns over 3-, 5-, and 10-year periods.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

With earnings season mostly done and the government shutdown putting a lid on new data releases, there isn’t too much to talk about.

Earnings have been mostly good for US companies, and more evenly distributed than in past quarters. That said, the AI bubble appears to be deflating a bit. The sky-high valuations given to AI companies have come down, with Nvidia and Amazon’s valuations coming back to earth and Tesla’s valuation replacing them in space (see Chart of the Week).

The big problem right now is that investors are mostly flying blind. We are seeing job cuts on the rise, with over 153,000 job cuts announced in October alone — bringing the year-to-date total to over 1 million (last year at this time we had 653,000 job cuts). Without figures for job creation, we are struggling to understand if these job-seekers are now joining the ranks of unemployed or if they are finding new jobs. Recall, job creation has been very slow this year, as well, so my estimate is that these folks are now unemployed. But, again, without official employment reports it is hard to know.

On that front, the US Senate has cleared a procedural hurdle to re-open and fund the government. There is still some wrangling to come, but investors are celebrating the milestone.

Overall, there are positives and negatives weighing on the economy. I see the balance of risks to the downside, but it is difficult to know which trigger might break investor confidence and push markets over a cliff. The deteriorating labor market is a serious concern and if it has gotten considerably worse while investors sat in the dark, I suspect markets will react negatively. I am still recommending caution to our investors, but your goals will determine which risks are appropriate for you.

Chart of the Week

Today’s chart shows the valuation of the “magnificent seven” stocks (NVDA, AAPL, META, GOOGL, MSFT, TSLA, and AMZN) as measured by each company’s price-to-earnings ratio. The more extreme valuations have come back to earth, but Nvidia and Amazon’s 2023 valuations have been replaced by Tesla’s of almost $300 for every $1 of profit!

The challenge with valuations, however, is that they are not a very good timing indicator. Sometimes extreme valuations can still lead to above-average returns. NVDA is a good example. Despite watching their valuation fall from 250x to 54x (an 80% contraction!), the price of their stock still moved higher, tripling over the same period! Valuations are a tricky business.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Trade tensions, earnings, and economic data (or lack thereof) are on investors minds this week.

The US-China trade spat broke out again on Friday with Chinese officials declaring a dramatic increase in controls around rare-earth mineral exports. The Trump administration threatened a 100% tariff on Chinese imports unless that was walked back. All eyes are on a potential Trump-Xi meeting in Korea later this month.

Earnings season begins this week with major banks reporting such as JPMorgan and Bank of America. Cash set aside to offset bad loans will be an important figure to watch, as that tends to be a bellwether for the economy. Overall, however, investors expect a good earnings season with earnings coming in about 13% higher than this time last year.

Finally, investors are waiting on important data, such as the unemployment rate, retail sales, and inflation — all of which have been delayed due to the government shutdown. Investors tend to get jittery when flying in the dark, so the longer important data is delayed, the more risk that tends to build up in markets.

Overall, I still see ample weakness in the underlying economic data: all of the classic recession signals are flashing red. However, earnings continue to be strong and, despite high valuations in US stocks, I expect a good earnings season could create a tailwind through the end of the year. There are lots of risks to that view, of course, including the sudden failure of some large companies in recent months, trade tensions, and a drawn-out US government shutdown. In the end, the risks you take in your portfolio are entirely dependent on your goals. If you are unsure what that should look like, let’s talk about it.

Chart of the Week

This week’s chart is courtesy of LSEG and Reuters, showing expected earnings growth by sector. Technology is yet again expected to outperform (largely driven by darlings like Nvidia, Oracle, and other AI names), with the market expecting to average about 8.8% higher earnings than this time last year. Factset suggests that this figure could be closer to 13%. In any case, earnings have been the one bright spot. As investors listen to earnings calls, they will be listening carefully for any sign of future weakness. Valuations are very high, and that can create quite a bit of fragility.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Last week the Federal Reserve lowered interest rates by 0.25%, which was widely expected, and indicated that two more rate cuts are likely before year-end. In his press conference, chairman Powell pointed to the very bad jobs figures that came in through the summer as reasons for their cut. This week we see some data on durable goods orders, consumer sentiment, and personal consumption expenditures, but it is overall a light data week.

Cryptocurrencies sold off hard over the weekend — bitcoin fell 2.5% and ether fell 6.9% — in what looks like the unwinding of a significant number of positions (Bloomberg reports that over 400,000 traders liquidated in a 24-hour period). While crypto markets are subject to their own dynamics, this could well be simple profit-taking after a strong run upward. In related news, we have seen gold rally substantially, moving higher by 10% in the last month.

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Overall, the underlying economic data is still weak. Employment is deteriorating, and the restatement of employment figures over the past year has indicated that employment is far worse than previously thought. That said, corporate earnings have been the little engine that could — powering forward no matter the underlying data. As this quarter comes to a close, investors are watching earnings reports very, very closely for any sign of weakness.

Chart of the Week

I came across another indicator that I am adding to my lineup — a thank you to LSEG’s Worskspace team for this one! This indicator is, essentially, an indicator of how fragile the current market is. Of course, fragility is a difficult indicator; just because something is fragile does not mean that it will break. That makes this indicator a poor market timing tool — but it does tell you to be cautious and keep your eyes open for something that may rattle markets too much. As the indicator shows, this market has entered a fragile state.

In other words, be careful out there.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Fed stole the show last week. Investors got what they hoped for from Powell’s speech at the central bank’s Jackson Hole retreat — a more dovish Powell paves the way for a September rate cut, which is now mostly expected. With Trump’s pressure on the Fed ramping up, some analysts suspect a “jumbo” cut may be on the offering (0.50%) by the end of the year.

The market’s run to yet another new high, however, is overshadowed by growing concern about the labor market which is sending mixed signals. Job creation has slowed to a crawl and layoffs have begun, yet the unemployment rate has held remarkably steady in the low 4% range.

Though it is very difficult to disentangle, this is likely due to the significant drop in immigration. For the first time in recent memory, the US may see a net negative immigration flow (that is, more people leaving than coming). There are arguments for whether this is good or bad, but in the short term it has shrunk the labor market. Though there are fewer jobs, but there are also fewer people looking for jobs. So, the labor market appears to be in an unusual equilibrium at the moment.

Overall, the fundamental data is still poor, but corporate earnings — especially among retailers, which are a good guage for US consumers — have continued higher. While I still see a recession, it appears my calls have made me early. I recognize that this is just as dangerous as being late, so I suggest, just as I always have, that you balance your upside risks and downside risks based on the goals you are trying to achieve. Investors within 5 years to a goal have less ability to weather downside, while investors with more than 10 years to a goal probably shouldn’t worry too much in the short term about a recession.

Chart of the Week

One benefit to consumers we have seen since 2024 has been a reversal of the damaging trend of price growth outpacing wage growth. The almost 1% faster growth of wages over the past year is helping workers get back ahead, though inflation has remained stubbornly high. We are, unfortunately, still a ways away from the “glory days” of 2018 – 2019 when wages grew about twice as fast as prices — though, it is very unlikely we will see the 2010 – 2020 era again in our lifetime.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

This week we see the all-important inflation figure, expected around 2.8%. Investors have been whipsawed a bit by on-again off-again expectations about the Fed cutting rates. Because inflation is one of the core inputs into rate expectations, this week’s data could push markets around. This week we also see retail sales figures. Since consumers have largely kept the US economy afloat over the past year, these figures will be scrutinized closely.

Earnings season is coming to a close with 90% or so of US companies having reported earnings. Overall, earnings posted better than expected, with profit growth around 12% over this time last year. Additionally, tariffs have been less of a concern among both analysts and business executives now that policy is (mostly) ironed out.

As I have mentioned many times before, all of the traditional recessionary indicators are flashing red. The yield curve, the unemployment rate, PMIs, and several others have been indicating contraction for many months now. Yet, the market powers higher and companies continue to earn higher profits. While I have urged caution up to now, I admit to being at a crossroads. It is possible that the traditional signals are simply too distorted by any number of things to be reliable, in which case it may make sense to turn back up the risk in your portfolio.

Before doing that however, we should assess the costs of being wrong. If the signals are indeed accurate and the market enters a recessionary phase in the coming months, the costs of that is likely higher for individuals within about 5 years to a goal. For investors with 10 years or more until their goal, that cost may not be so high. In any case, your goals will determine the types of risks we can afford in your portfolio. Discussing this with an advisor just makes sense in this confusing environment.

Chart of the Week

Breaking down US GDP into its component pieces we see the volatility in trade that has characterized the last six months. However, looking past that (the pink and blue bars in the chart below) reveals an ongoing trend in personal consumption that has been concerning. Before 2025, personal consumption had been adding some 2.5 percentage points of growth. In the past two quarters it has added less than half of that. Trade volatility may be hiding the real problem: are US consumers reaching exhaustion?

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

This week is a big week for markets. The Federal Reserve meets this week, we see data on employment and economic growth, and we are in the thick of earnings season. A lot to digest!

We are about a third of the way through earnings season. It appears companies will grow earnings by about 7%, which is right about average. Investors are listening to earnings calls for hints about coming quarters as the trade war and deteriorating economic data are both taking their toll on forecasts (more on this in this week’s chart of the week).

This past weekend, the Trump administration reached a deal with the European Union, settling on 15% tariffs on EU imports to the US. Steel and aluminium will be taxed at a 50% rate, however, and there remains some provisions to still be hammered out. The EU agreed to purchase $750 billion worth of energy products (oil, natural gas, and nuclear fuel) and invest $600 billion in US infrastructure and military equipment over the next three years. To put these figures into perspective:

• Total US oil & gas production totals around $480 billion per year. Assuming that most of the EU’s committed purchases are of oil & gas, this commitment represents about half of total US production per year — a substantial increase in demand for US producers.
• The US exports around $118 billion worth of military equipment every year. If we assume that around half of the EU’s committed $600 billion figure is slated for military equipment, that would represent an almost doubling of military exports over the coming three years.

There are several investment takeaways from this deal, and we will begin implementing those in our portfolios over the coming weeks, though many questions still remain (not the least of which: how can these numbers possibly work?).

Investors expect the Fed to hold rates steady at their meeting this week, though all ears will be tuned to hear any changes in the pace of cuts. At the moment, the market is split between a cut in September or a cut in October.

And, lastly, we are watching the employment very closely this week. So far, US employment has been getting steadily worse, with more people leaving the labor force than finding jobs, and several prominant job cuts coming up.

Overall, while the recent trade deals may be a boon for certain sectors, we still see higher prices to consumers at a time when consumers are strained. The economic data is still negative, but markets have continued to climb to new highs. In our view, this is a time to evaluate where and how you are taking risks.

Chart of the Week

This week’s chart demonstrates the impact of tariffs on global companies. By far, the most common action in the US has been to cut and withdraw earnings guidance, with many companies simply stating they expect to make less money.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The US economy continues to demonstrate surprising resilience. All of last week’s data came in better than expected. Employment was stronger, with more job openings than expected, and the headline unemployment rate dropped to 4.1%. We also saw factory orders increase at a very strong pace.

There is, unfortunately, still bad news lurking inside the good. If we factor out government hiring, the private sector only added about 74,000 new jobs last month (not a strong number). The only reason the unemployment rate dropped was because more people left the workforce than left their job. There were also several layoffs announced this past week, most notably Microsoft, who will be laying-off about 7000 workers in coming months.

All eyes this week are on Wednesday’s trade deal deadline imposed by the Trump administration. Trump has signalled his willingness to push that deadline to August 1. In my view, the deals that have been done are damaging to US consumers and don’t seem to encourage foreign consumption of US-goods. Net-net, I see the deal with China, for example, as overall negative for economic growth (tariffs on Chinese goods are went from 10% to 50%, and higher for some goods — not to mention, the administration has not released the details of the deal). At a time when US consumers are already weakened, adding the price burden of tariffs might be enough to slow consumption and push the economy into a recession.

The “one big, beautiful bill” that was passed last week may offer some offset to those tariff woes, at least in the short term. There are some stimulus-oriented provisions that could help boost spending, and some provisions that may help markets — the $1000 for children born between 2025 and 2028, for example, could boost market inflows by about $3.6 billion per year (about 6% higher inflows than we currently have, on average).

Overall, I am in wait-and-see mode. The data is mixed, but has been generally negative over the past months. The dollar’s crash may also portend inflation and an overall slowdown (see our Chart of the Week). The tariff issues that sent markets reeling back in April have not been resolved though markets seem to have shrugged them off, pushing into all-time highs. Based on the data, I can see no justification for this, and our strategy has always been to follow the data, which we shall continue to do.

Chart of the Week

The US dollar’s crash has been an under-told story over this year. Between tariff shocks, the ballooning deficit from Trump’s “one big, beautiful bill,” and the administration’s ongoing war of words with Fed Chair Powell, the US dollar has been in freefall. We see in this week’s chart how much it has declined. Relative to the euro, for example, the dollar has lost almost 14% of its value this year, and it has lost 9% relative to UK sterling.

Some economists view a declining currency as a good thing — it generally makes your goods and services less expensive to overseas buyers, thus encouraging exports. The dollar has a unique status, globally, however. The dollar represents a significant share of global trade, so less demand for dollars may indicate slower trade overall. More importantly, it means that a dollar buys 14% less in Europe than it did before, or 6% less in Canada. This creates upward price pressure on goods and services in the US which may yet further slow US consumers.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

We got an influx of data in the last week, but unfortunately none of it was particularly good. Manufacturing remains in contraction, factory orders continue to contract, and — most surprisingly — the services sector entered a contraction, with ISM’s non-manufacturing PMI posting a decline for the first time since last June. The services reading may be a one-month blip (as it was last year), so we will watch closely for next month’s reading to see whether a trend is forming.

Job figures also posted last week. On the upside, the unemployment rate held steady at 4.2%, but that wasn’t because unemployed people are finding jobs, it was because some 625,000 people left the labor force. Employers are still reluctant to lay off workers, which is good, but it is beginning to feel that the larbor market is on a knife’s edge.

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This week we see all-important inflation data, which will set the stage for the Fed meeting coming next week. Markets do not expect the Fed to cut rates, but investors will be listenting intently to Powell’s press conference for signs of what the Fed is thinking the path of rates may be through the end of the year — especially as economic data affected by tariffs has begun to post.

Overall, I am re-emphasizing my cautious view. I realize that this downward economic trend has been in slow-motion. Admittedly, I feel a bit like a Chicken Little. But, I am committed to reading the data for what it says, and while markets have certainly bounced back from their low, the economic data continues to worsen. At some point, prices catch up to the data. Therefore, in my view, downside risk looms larger than upside risk in our current environment. As the data changes, so will my view.

Chart of the Week

The Institute for Supply Management produces two indexes: their manufacturing index and their non-manufacturing index (which basically covers the services sector). For both of these figures, readings below 50 indicate fewer orders expected, while readings above 50 indicate growing orders. The manufacturing figure is somewhat volatile, and because manufacturing is only about 25% of the US economy, it is not uncommon to see a contraciton there without a larger economic contraction. Services, however, represent some 70% of the US economy. Typically, when services begin to meaningfully contract, a recession is not far behind.

Last week’s contraction in services, if part of a larger trend, is concerning becuase both services and manufacturing would be in contraction. That is, effectively, the entirety of the US economy. Therefore, next month’s figures will be very important to keep an eye on.

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