THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Freddie Mac
U.S. ECONOMIC HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade 5 key economic conditions that we believe are of particular importance to investors.
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CONSUMER SPENDING |
A |
Our consumer spending grade remains an A despite recent softening in retail sales numbers. US consumer confidence remains high, and we anticipate a strong holiday shopping season. The consumer has been the bedrock of the US economy through much of the current expansion. |
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FED POLICIES |
B+ |
With the Federal Reserve expected to refrain from any further adjustments to interest rates without a material change in the economic outlook, we have downgraded our Fed Policies grade to a B+. The low level of interest rates remains a positive for markets, but sentiment will likely no longer be aided by anticipated rate cuts. |
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BUSINESS PROFITABILITY |
B- |
As was largely expected by markets, corporate earnings growth was weak during Q3 as a result of the global slowdown and trade policy uncertainty. However, according to Factset, 75% of S&P 500 companies reported a positive earnings surprise, meaning things were not quite as weak as many had feared. |
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EMPLOYMENT |
A |
December’s headline jobs growth number of 145,000 missed consensus expectations, though the unemployment rate remained stable at 3.5%; a 50-year low. Despite the softer than anticipated results in December 2019 was an incredibly strong year for the labor market, and it remains the healthiest area of the economy. |
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INFLATION |
A |
Inflation is often a sign of “tightening” in the economy and can be a signal that growth is peaking. Recent inflationary data has increased slightly, but inflation remains benign at this time, which bodes well for the extension of the economic cycle. |
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OTHER CONCERNS |
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INTERNATIONAL RISKS |
7 |
We have raised our International Risks metric to a 7 following the US airstrike which killed Iranian General Qassem Soleimani. We expect heightened volatility in markets as a result of the further escalation of tensions that this action represents. However, we stress that volatility stemming from geopolitical events tends to be short-term. |
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.