by Franklin J. Parker, CFA
After last week’s heavy selling, global markets have appeared to stabilize — albeit at lower prices than before. Many investors are left wondering whether the selling might continue or if that was just a short-lived downdraft. As I have repeated many times, the overall economic environment appears to favor lower prices rather than higher.
Let’s Connect
Employment has worsened recently, and various economic indicators (consumer debt, PMI, the index of leading economic indicators, and the yield curve) all point to a pre-recessionary environment. That said, one bright spot is corporate earnings, which have finally begun to recover (Q2 earnings were up 10.8%, which is the highest in three years), and that may well pave the way forward for higher prices if the rest of the economy catches up.
This week, all eyes will be on Thursday’s inflation report, which is expected to come in around 3%. Figures much different than expectations could easily move markets around, as the Fed’s pace of rate cuts is all investors seem to care about right now.
In sum, this is not the time to be adding risk, in my view, but your goals will determine what exactly that means for you individually. As always, that is something we would be happy to talk through with you.
Chart of the Week
After recovering into the summer, the purchasing manufacturer’s index has begun to show contraction again (in this index, anything below 50 is contraction while above 50 is expansion). While this figure is noisy and can point to contraction outside of a recession, we have never seen a recession with a figure well above 55 or so. Again, this is just another indicator that shows weakness in the overall economy.
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