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A Goldilocks Economy - Not too Hot and Not too Cold

by Fortem Financial May 6, 2019

The persistently low rate of inflation is feeding a debate on the Federal Reserve’s monetary policy.  The latest inflation reading (specifically, the PCE Core rate) fell to an annual rate of only 1.6% despite overall strength in the economy.  White House officials and some economists argue that the Fed should support continued economic expansion by lowering interest rates; indeed, in the lead up to the Fed’s meeting on Wednesday, many investors anticipated a rate cut.  However, in announcing no change to interest rates, Chairman Powell stated that the factors contributing to low inflation were “transitory” and there was no need to consider raising or lowering interest rates.  The market’s selloff on Wednesday reflected its disappointment and yet, the markets recovered by Friday.  For the week, the Russell 2000® Index led the indices (1.40%) followed by the Nasdaq (0.22%), S&P 500® Index (0.20%); the Dow Jones Industrial Average trailed with a slight (-0.14%) decline. 

Friday’s release of the April jobs report provided a positive surprise; the economy gained 263,000 new jobs versus expectations for 181,000-190,000.  Unemployment fell 0.2% to 3.6%, the lowest rate since December 1969.  Many companies have been aggressive in developing training programs to fill specialized jobs.  Other economic data were mixed; notably, productivity rose 2.4% year-over-year, the highest increase since 2010.  Productivity improvements are key objectives for many companies; gains here are especially important given the low unemployment rates.  Increased productivity also enables companies to improve sales revenues without offsetting employment expenses.  The inflation debate will likely continue; over time, officials may need to modify historical assumptions about inflation.

Corporate earnings continue to exceed analyst expectations; overall, with results from 76% of companies in the S&P 500® Index reporting, earnings have declined by -0.8% compared to estimates of -4.8%.  Individual company results include weather-related factors which caused a railroad company to slightly miss earnings expectations while reporting broad-based demand across all sectors.  A container leasing company experienced seasonal weakness yet still reported utilization in the mid-90% range.  The company commented that customers expect that shipping demand will grow during 2019.  Oil service companies also report greater demand and an optimistic outlook.  This snapshot is consistent with other corporate commentaries which support an improving view of global economies.

As the end of earnings season nears, the markets will likely focus on the progress of U.S. and China trade negotiations and Brexit.  The market bias remains positive despite occasional pullbacks.

Source: Pacific Global Investment Management Company

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

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Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

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The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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