Market News – July 30, 2018

SOLID U.S. ECONOMIC GROWTH IN THE SECOND QUARTER: The U.S. economy grew at an annual rate of 4.1% in the second quarter after a first quarter of 2.2% annualized growth. This is the best quarter in four years. The main contributing factors were consumer spending, business investment, surging exports and increased government spending. Because this was the number that was largely expected the announcement did not have much of an impact on the markets. There are two causes of concern in the positive report. Residential home-building numbers are trending in the wrong direction, so we will have to keep an eye on that. In addition, the gains to GDP from exports may have been partly caused by a rush to move product before tariffs begin to affect the trade scene.

PROGRESS IN GLOBAL TRADE TENSIONS: On Wednesday the U.S. and the European Union struck a deal that will see the U.S. suspend the imposition of any new tariffs on the EU. This means that the 25% tariff on EU auto imports to the U.S. will not happen. In return, the EU agreed to import more soybeans and energy from the U.S. More talks are now planned for an overall deal, but no deadline was put on it.

STOCKS MARCH FORWARD: For the fourth straight week, U.S. stocks had a positive week. This despite a challenging time for tech stocks. Facebook stock experienced its worst day ever on Thursday, falling about 19%. Intel, Twitter and Netflix fell as they all failed to meet their estimated quarterly numbers. The residential home builder market is also struggling as data showed that home sales slipped a bit in the second quarter. The general strength of the overall economy is keeping the indices in positive territory, but investors seem ready to quickly dump stocks that show any signs of slowing growth.

U.S. GOVERNMENT CONTINUING TO BORROW: 2018 is the first year when tax receipts will not pay for Social Security and Medicare and the so-called trust fund will have to buttress the program. Those funds are projected to run out in the year 2034 (Social Security) and 2026 (Medicare). Meanwhile, the overall national debt is a growing problem. The current debt is $34 trillion, or 120% of the GDP of the U.S. The only other time we have been in that territory was during World War II. There is no sign that this statistic has peaked, unfortunately. Added to this, if you put a value on the promise to pay Social Security and Medicare benefits that are beyond the projected tax receipts, that adds another $76 trillion to our current debt situation.

References:

STRONG U.S. ECONOMIC GROWTH IN THE SECOND QUARTER: https://www.calculatedriskblog.com/2018/07/bea-real-gdp-increased-at-41-annualized.html
U.S. GOVERNMENT CONTINUING TO BORROW: https://www.horsesmouth.com/us-is-broke-and-no-one-is-paying-attention
PROGRESS IN GLOBAL TRADE TENSIONS: https://www.reuters.com/article/us-usa-trade-mnuchin/u-s-touts-eu-trade-deal-says-others-can-also-make-progress-idUSKBN1KG1RS