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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US ECONOMY |
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CONSUMER HEALTH |
POSITIVE |
The consumer has been the bedrock of the US economy through much of the current expansion but is likely to be challenged by the rising fear associated with COVID-19. We are reducing our grade from VERY POSITIVE to POSITIVE and will be watching consumer spending data closely in the coming weeks. |
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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. |
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EMPLOYMENT |
VERY POSITIVE |
Hidden amid all of the volatility last week was the February jobs report, which once again exceeded consensus expectations. At this point in time, we still view the potential for permanent job losses as a result of COVID-19 as very low. |
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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. |
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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. |
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MONETARY POLICY |
POSITIVE |
With the potential threat that COVID-19 poses to the economy, attention is now turning to whether the Federal Reserve will take action following its March policy meeting. Markets are beginning to anticipate a rate cut from the Fed, which would provide support for market in the near-term. |
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GLOBAL CONSIDERATIONS |
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GEOPOLITICAL RISKS |
VERY NEGATIVE |
Our geopolitical risks rating is now VERY NEGATIVE as there is more evidence of the coronavirus spreading outside China. However, we think it is important for investors to disentangle the public health concerns over the near-term from the expectations for markets over the long-term. The outbreak remains a near-term issue at this time. |
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ECONOMIC RISKS |
NEGATIVE |
As discussed in our weekly commentary, COVID-19 represents a real threat to economic activity globally. However, we simply do not yet have the data to support a full analysis of the economic impacts of the disease and quarantine efforts. We plan to continue keeping tabs on a variety of leading indicators and will update our outlook accordingly. |
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.