Looking Outside the Headlines
The health of the Chinese economy has been a predominant headline placing downward pressure on global stock markets recently, but if you’ve been caught up in the headlines you may have missed this:
- The Bureau of Economic Analysis reported last Thursday that real gross domestic product rose at an annualized rate of 3.7% in the second quarter. All the components of gross private domestic investment rose at an annualized combined growth rate of 5.2%. The largest component of GDP, consumer spending, was revised up to 3.1%.
- Initial Jobless Claims in the US decreased to 271k for the week ending August 22, coming in below its 4 week average.
- The University of Michigan’s consumer sentiment came in at 91.9 in August slightly below its 4 week average, but still a strong reading.
Overall China’s woes are creating volatility in the near term, but if you focus on the big picture the US economy seems to be improving. Barron’s Gene Epstein pointed out on Friday the following: “WHAT ABOUT THE FALLOUT from weakness in Asia? It has parallels with the summer and autumn of 1998, when an Asian crisis threatened global stability. In the third and fourth quarters of ’98, growth of real gross domestic product in the U.S. accelerated, running an outsize 5.3% and 6.7%. The Asian crisis may even have contributed to that stellar performance by encouraging low energy and commodity prices-factors that are present now. The Stand & Poor’s fell nearly 20% from mid-July through late August of 1998, almost qualifying as a full-fledged bear market. But the market made new highs by late November.”
This is a good example of why it is best to follow an investment discipline and not your emotions. From an investment standpoint we’ve already taken strides to reduce your exposure to energy and basic material companies where the greatest risks seem to lie with a slowing Chinese economy. We will continue to monitor the economy and make improvements when necessary with the objective in mind of reducing downside risk.