Super Bowl Snacks

The one where you realize the chips are not scoops…what a letdown 

GDP growth came in at 2.1% for the fourth quarter, bringing 2019 GDP growth to 2.3% (slowing from 2.9% in 2018). Consumer spending, which is the main engine of growth in the US, increased only 1.8% (slowing from 3.2% and 4.6% earlier in the year). As anticipated, the plummeting trade deficit due to the tariffs on Chinese imports was a boost but is expected to reverse within the next quarter given the ongoing trade negotiations between the two nations. The other big lift in the quarter came from housing outlays that increased 5.8% as mortgage rates dropped. On the other hand, however, business investment remained muted as spending on structures dropped another 10%. 

Moral of the story: While the consumer is still relatively strong, the level of strength we saw earlier in 2019 isn’t likely to return in the near future. And even though we have taken steps toward easing trade tensions with China, Mexico, and Canada, there are still uncertainties that will likely keep business spending on the sidelines – the upcoming presidential election and, most recently, the threat from the coronavirus. Given all this, most economists are predicting GDP growth in 2020 to be less than 2%. 

The one where you regret the decision to bring the guac because the avocados are not on sale.

Supplementing the GDP report, we also saw December’s consumer spending report this week, which showed that while consumers increased spending during the month, the seasonal holiday spending increase was the smallest we’ve seen in three years. Inflation, while increasing to a one-year high of 1.6%, still remained well below the Fed’s 2% target rate.

Moral of the story: While incomes and spending increased in 2019, it was at the slowest pace in three years, which is to be expected in the 11th year of an economic expansion. Even though consumer confidence remains fairly high because of the tight labor market, wages just haven’t increased as they should when unemployment is at record lows to encourage higher spending. 

The one where you try to figure out what’s going on with a very complicated chili 

Y’all this was such a busy week! The market had to digest a slew of economic events, a Fed meeting (though not very eventful), worsening coronavirus news, impeachment hearings, official Brexit, and earnings from over 560 public companies. Despite positive earnings releases this week from giants like Apple, Amazon, Microsoft, and GE, the market was largely under pressure as many US companies with exposure to China had to take measures to stop the spread of the coronavirus. 

Moral of the story: We’re about halfway through earnings season at this point and over 70% of the S&P 500 companies that have reported have exceeded the market’s expectations. However, the market has been very volatile this month – to take you on a trip down memory lane, we’ve seen impacts from tensions with Iran, trade negotiations with China/Canada/Mexico, and now the coronavirus. This week, the market effectively gave away all its gains and most major indices closed January slightly lower. Historically, February tends to be a weak month for stocks and given coronalightvirus worries still persist, history is likely to repeat itself. 

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