The Numbers & “Heat Map”

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.

US ECONOMY

CONSUMER HEALTH

VERY POSITIVE

The consumer has been the bedrock of the US economy through much of the current expansion and we have seen little to suggest that this cannot continue.

CORPORATE EARNINGS

NEUTRAL

Corporate earnings growth was weak throughout 2019 as a result of slowing in the global economy and trade policy uncertainty. However, analysts are expecting mid to high single digit earnings growth in 2020, which will be important to sustaining recent levels of equity returns.

EMPLOYMENT

VERY POSITIVE

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.

INFLATION

POSITIVE

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.

FISCAL POLICY

POSITIVE

The Tax Cuts and Jobs Act of 2017 lowered the effective tax rates for many individuals and corporations. We view the cuts as a tailwind for economic activity over the next several years.

MONETARY POLICY

POSITIVE

With the Federal Reserve expected to refrain from any further adjustments to interest rates without a material change in the economic outlook, it is unlikely that changes in Fed Policy will disrupt the economic cycle in the near future. Furthermore, the low absolute level of interest rates remains a positive for markets.

GLOBAL CONSIDERATIONS

GEOPOLITICAL RISKS

NEGATIVE

Our assessment of Geopolitical Risks is NEGATIVE at this time as a result of the continued spread of the coronavirus outside of mainland China. The virus poses a threat to economic growth and consumer spending in affected regions as a result of the “fear factor” it induces.

ECONOMIC RISKS

NEUTRAL

Due to low inflation and weak economic activity, central banks around the world remain in a very accommodative stance. We have seen some recent evidence of modest recovery in places like Germany, but overall, we expect global economic growth to remain modest.

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.

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