Weekly Investment & Economic Talking Points
- The first estimate of Q3 GDP came in at 3% – a very robust number.
- As great as a 3% GDP number sounds, it may not be sustainable. One of the drivers of GDP is employment growth. Unemployment is currently around 4.2% and the lowest it’s been in the previous 50 years was 3.8% in April of 2000. So given that we are nearly at “maximum” employment any boost in GDP will likely have to come from sources other than employment growth.
- New single-family home sales increased 18.9% in September. According to First Trust, “New home sales exploded in September, growing at the fastest pace for any month in the past 25 years and hitting the highest level since 2007. Moreover, new home sale blew away even the most optimistic forecast by any economics group. Sales are now up 17% versus a year ago. Going forward, it’s important to remember that new home sales are very volatile from month to month, but we expect the upward trend to continue. Most of the strength in September can be attributed to a bounce back in the South after the hurricanes suppressed sales in August. The South, accounted for 78% of the gain in the pace of homes sold nationwide.”
- New orders for Durable Goods rose 2.2% in September and are now up 8.3% in the last twelve months. Perhaps the most important “leading” indicator in our opinion, durable goods orders are an important indicator to the health of the economy. As the name implies, a “durable” good has a longer life and yield utility over time rather than being consumed immediately. Businesses and consumers generally buy durables when they are confident about the future of the economy.
- Quick political note – the first indictments from the Mueller investigations are the big risk talking point this week. As of this writing, the indictments are limited to wire transfers from 2012, and not related to President Trump or the election. Should that change, we should expect to see volatility in our opinion.
The economy continues to chug along and earnings continue to grow, yet there is still very little, if any, hubris in this stock market rally. There are some clouds on the horizon with the uncertainty surrounding the FED unwinding its balance sheet, the ECB beginning to taper it’s bond purchase program, and of course the aforementioned Mueller investigations. However, earnings growth seems to be trumping (pun intended) all of that – for now.