Macro Overview – September 2018

Kent Forsey, CFP® Client Education, Macro Overview, S&P 500, Stocks, US Economy

Hillspring Financial

Here is a quick review of some recent issues affecting our economy from tariffs to emerging markets, history making gains to history making mandates.

Trade and tariffs continued at the forefront of discussions among the U.S. and international trading partners.  Topics at hand included the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO), and safeguarding U.S. intellectual property right internationally.

Emerging market currencies were shaken worldwide as turmoil with Argentina and Turkey spilled over into the broader markets.  Contagion concerns spread in late August as Turkey’s currency fell following comments by the European Central Bank (ECB). Argentina saw its currency collapse as it sought immediate financial assistance from the International Monetary Fund (IMF).  Contagion refers to the threat of what is occurring in Turkey and Argentina possibly migrating to other emerging market economies.  The brewing financial crisis with Turkey is similar to the government debt crisis that occurred with Greece eight years ago.  Recently imposed U.S. sanctions on Russia added to emerging market distress as the Russian ruble weakened versus other major currencies and the U.S. dollar.

The stock market marked its longest period of uninterrupted gains in history, running 3,453 days from the market low on March 9, 2009 during the depths of the financial crisis.  Since then, the Dow Jones Industrial Index propelled from 6,500 to over 25,500 in August, while the S&P 500 sprang from 666 to 2,800.  Many economists and market analysts attribute the tremendous run to Fed induced liquidity in the form of ultra-low rates for an extended period of time.

It has been 10 years since the financial crisis of 2008 when financial markets experience turbulence not seen in decades.  An ultra-low interest rate environment ensued for nearly a decade after the Federal Reserve began flooding the financial markets with massive amounts of liquidity in order to stanch the crisis at hand.  Since then, a number of legislations and regulations were implemented providing safety measures and guidelines.

Viewed as an optimistic indicator for the U.S. economy, inflation rose the most in seven years as consumer prices increased at an annual rate of 2.9%.  While inflation is an indicator of economic expansion in the economy, wages are not keeping up with the rising prices nationwide.

California is due to become the first state to impose a quota for the inclusion of women on the boards of publicly traded companies headquartered in the state.  Other states were expected to follow California’s lead by eventually implementing similar mandates.

Various social media and technology companies are facing criticism and possible regulatory oversight regarding the influence they maintain.  Many see that the political and cultural clout held by just a few companies may eventually be of concern.

Kent G. Forsey, CFP®
President

Sources: ECB, IMF, Dept. of Commerce, Bloomberg, http://www.leginfo.legislature.ca.gov, ©OneBlueWindow, LLC.