Did you hear the news?
A tech company introduced a microwave you can turn on using Wi-Fi – as long as you have one of the company’s voice assistants at home, reported Kaitlyn Tiffany of Vox. Soon, the voice assistants will be built with neural networks that will formulate hunches about whether their owners might like to be reminded to lock the door or turn off a device.
Some people love the idea. Others don’t.
Internet-enabled appliances weren’t the only show in town last week. The strong performance of the U.S. economy earned a standing ovation from investors who pushed the Dow Jones Industrial Index and the Standard & Poor’s 500 Index to new highs. Many global stock markets moved higher, too. Ben Levisohn of Barron’s reported:
“One need only look overseas for a sign that investors are feeling better about the state of the world – or at least better enough to do some bargain-hunting. China’s Shanghai Composite rose 4.3 percent this past week, though it is still down 21 percent from its January high…”
The news in a FactSet Insight written by John Butters may dampen some investors’ enthusiasm.
With the third quarter earnings season ahead, Butters reported 98 of the companies in the Standard & Poor’s 500 Index have issued guidance. The majority (76 percent) issued negative guidance, meaning they anticipate earnings will be lower than analysts’ mean earnings per share estimates.
It’s important to remember that, historically, the U.S. economy has moved in cycles. We may be in the latter stages of this expansion. The next stage is contraction and no one can predict exactly when it may occur.
All investors are consumers, but not all consumers are investors.
The September installment of University of Michigan’s Consumer Sentiment Survey reported Americans are feeling pretty optimistic. Consumer sentiment rose to the second highest level since 2004, and consumer expectations reached the highest level since 2004. Surveys of Consumers chief economist, Richard Curtin, wrote:
“Consumers anticipated continued growth in the economy that would produce more jobs and an even lower unemployment rate during the year ahead…The largest problem cited on the economic horizon involved the anticipated negative impact from tariffs. Concerns about the negative impact of tariffs on the domestic economy were spontaneously mentioned by nearly one-third of all consumers in the past three months, up from one-in-five in the prior four months.”
Investors weren’t as optimistic, according to the American Association of Individual Investors (AAII). Last week, the AAII Investor Sentiment Survey reported bullish sentiment dropped more than 10 percentage points. The results were:
Despite the apparent shift in investor attitudes, stock markets moved higher last week. Vito J. Racanelli of Barron’s wrote:
“The stock market radiated confidence this past week, finishing about 1 percent higher despite choppy action. There was a plethora of good economic news – from lower-than-expected inflation to sky-high business and consumer confidence numbers – that drove shares up. Not even a ratcheting up of tough tariff talk Friday on the part of the U.S. could dampen investor enthusiasm for long.”
Some believe the AAII Sentiment Survey is a contrarian indicator. Last week, that may have been the case.
Remember: Volatility is normal.
Major U.S. stock market indices climbed into record territory during August. They gave back some gains last week. Peter Wells of Financial Times explained:
“Speculation about a fresh round of tariffs on Chinese imports from the Trump administration weighed on U.S. stocks, handing the S&P 500 its first four-day losing streak in a month. A strong jobs report only hardened expectations that the Federal Reserve views the U.S. economy as healthy enough to withstand a probable interest rate rise later this month.”
Strong economic growth and rising wages have the potential to push inflation – increases in prices of everyday goods – higher than the Fed’s 2 percent target. The Fed battles inflation and promotes financial stability by raising the Fed funds rate. Usually, higher rates make borrowing more expensive and slow economic growth, reported Katherine Reynolds Lewis at Bankrate.com.
Rising rates in the United States have an effect on emerging markets, too. Colin Dwyer of National Public Radio reported higher interest rates in the United States have enticed investors and they have moved money out of riskier emerging markets investments.
Last week The Wall Street Journal reported, “Emerging markets tipped into bear territory…The MSCI Emerging Markets Index’s 0.3 percent decline Thursday, led by selloffs in Russia and the Philippines, pushed that gauge of stocks in poorer countries 20 percent below its recent peak, the common definition of a bear market.”
Where is our country’s biggest export market?
Markets were fired up last week after the United States and Mexico agreed on new trade rules. The Standard & Poor’s 500 (S&P 500) Index reached an all-time high and finished the month of August up about 3 percent, reported Michael Sheetz, Thomas Franck, and Alexandra Gibbs of CNBC.
During the latter half of last week, though, the S&P 500 gave back some gains. A hitch in the giddy-up of trade talks between the United States and Canada caused the index to stumble. Damian Paletta, Jeff Stein, and Heather Long of The Washington Post explained:
“High-stakes trade negotiations between the White House and Canadian leaders unraveled Friday, a major setback in President Trump’s effort to redraw the North American Free Trade Agreement…the United States and Canada have interwoven economies, with integrated supply chains and vast amounts of trade. The value of goods and services sold between the two countries last year reached $673.1 billion, making Canada the United States’ largest export market for goods.”
The United States exported about $341 billion of goods and services to Canada in 2017, according to The Office of the U.S. Trade Representative website. Our top exports to Canada during 2017 included:
Trade talks are expected to resume next week.