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 |
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. |
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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 |
The economy added 225,000 new jobs in January, exceeding consensus expectations. The report also indicated that the unemployment rate ticked up to 3.6% as a result of more people looking for jobs. The expansion of the labor force should be taken as an additional sign of the confidence Americans have in the health of the labor market. |
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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 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. |
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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 |
NEUTRAL |
Due to low inflation and lukewarm 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.