The Numbers & “Heat Map”

October 29th, 2019

THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Freddie Mac

U.S. ECONOMIC HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade 5 key economic conditions that we believe are of particular importance to investors.

CONSUMER SPENDING

A

Our consumer spending grade remains an A despite a recent decline in retail sales numbers. US consumer confidence remains high, but we will be watching this metric closely over the next couple of weeks and throughout earnings season. The consumer has been the bedrock of the US economy through much of the current expansion.

FED POLICIES

A-

Our Fed Policies grade has been increased to A- after the Federal Reserve cut its interest rate target by 25 bps following its September meeting. The Fed will be meeting again this week and markets are expecting an additional rate cut, which would be the third cut this year.

BUSINESS PROFITABILITY

B-

As was largely expected by markets, corporate earnings growth has been weak thus far in Q3 as a result of the global slowdown and trade policy uncertainty. Throughout earnings season, we will be paying closer attention to management commentary and updates to forward guidance, which are likely to have a bigger impact on stock prices.

EMPLOYMENT

A

The US economy added 136,000 new jobs in September, below the consensus expectations of analysts. However, despite the lower than expected job creation, there was evidence of an acceleration of wage growth. The labor market continues to look quite healthy.

INFLATION

A

Inflation is often a sign of “tightening” in the economy, and can be a signal that growth is peaking. Recent inflationary data has increased slightly, but inflation remains benign at this time, which bodes well for the extension of the economic cycle.

OTHER CONCERNS

INTERNATIONAL RISKS

7

Following a re-escalation of the US/China trade dispute, we have raised our “international risks” metric back to a 7. Other key areas of focus for markets include the ongoing Brexit negotiations, rising economic nationalism around the globe, and escalating tensions in the Middle East.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

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