by Franklin J. Parker, CFA
This week is a light data week, though we do get data on existing home sales, durable goods orders, and consumer sentiment. All of these will give us some insight into the health of the economy.
Earnings season is largley over, and it appears that large US companies grew earnings by about 6%. Again, growth is better than contraction, but it isn’t great — especially when inflation eats away about half of that growth. Speaking of inflation, we also got inflation data last week, and it was slightly better than expected so markets reacted well to that. The real news last week, however, was retail sales which posted no growth. If the US consumer is slowing down, that is likely to trigger a recession, in my view. It has been the US consumer that has kept the economy afloat over the past few years.
Let’s connect!
Overall, I think too much hope has been placed in the Federal Reserve to perfectly thread the needle of a growing economy with no inflation. It seems far more likely that inflation is falling because economic growth is starting to sputter. This would be consistent with how past economic cycles come to an end, and I am inclined to err on the side of caution. Of course, exactly what that means for you is something we should discuss because it is entirely personal.
Chart of the Week
We’ve talked a lot about the Federal Reserve, however, it is only one player among many around the globe. That said, almost all of them are expected to begin cutting rates this year. The one exception is the Bank of Japan which is expected to continue increasing rates. Japan was one of the last major economies to have negative interest rates and the reversal of this policy is having large but quiet effects on global flows of capital.
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