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Weekly Market Digest: Debt-to-GDP Ratio Nears All-Time High

Tesla, Apple, Amazon, and Facebook announced strong earnings this week while the Fed announced no changes to the Fed-Funds rate. By keeping the Fed-Funds rate as is, the Fed indicated that the US economy is doing well in some areas, but not well enough for the Fed to return to increasing rates as it last did in 2018.

Amidst this mixed economic information, the Coronavirus became a more prevalent headline as its impact continued to ripple within the global economy. Stock markets closed lower on the week as a result, with the yield on 10-year US Treasuries declining over 10% (yields decline when prices rise).

Impeachment hearings in the United States also continued this week with the final vote on bringing in new witnesses being denied in the Senate.

Weekly Returns

S&P 500: 3225.5 (-2.1%)
FTSE All-World ex-US(VEU): (-3.5%)
US 10 Year Treasury Yield: 1.51% (-10.6%)
Gold: $1,589.40 (1.2%)
EUR/USD: 1.110 (0.6%)

Major Events

  • Monday – Markets moved downward in response to escalating concerns around the Coronavirus as companies with a China presence took steps to curtail risks to their workforce
  • Tuesday – Apple reports its quarterly earnings at an all time high, thanks to its Services, Wearables, and iPhone sales
  • Wednesday – The US Federal Reserve announced that it is keeping the Fed-Funds rate in its current range of 1.5-1.75%
  • Thursday – Coronavirus Declared a Public Health Emergency by the World Health Organization
  • Thursday – Amazon announces their Q4 2019 Profit exceeded $3 billion dollars
  • Friday – After nearly 50 years, the U.K. will officially leave the European Union at mid-night in Brussels

Our Take

News outlets picked up a report from the Congressional Budget Office this week and reported that the United States’ debt levels are beginning to approach the historical all-time high debt to Gross Domestic Product(GDP) ratio. The historical high was set in 1946, at 106% of GDP, shortly after the conclusion of World War II. For 2019 the report states that US Government debt is 78% of the US’ GDP.

What does this mean? In short – the US Federal Government is continuing along a negative income trajectory, where it is spending more than it’s taking in from tax revenues, and therefore must issue debt to support its spending. It should be noted that the United States has run at a fiscal deficit for many years over its existence and the concept of running at a deficit was even a topic of discussion in the time of Alexander Hamilton.

A report of an increase in Debt/GDP ratios doesn’t guarantee good or bad things in our future, but I do think it indicates that some changes are likely to occur (think continued adjustments to Social Security Benefits, or higher future tax rates). Whether it be greater taxation, lower spending, or some mix of both, investors should try to avoid being surprised by just that: surprises.
The best way to do this? Have a flexible financial plan, where you plan for the worst, but hope for the best. You can’t be prepared for every possible outcome, but you can be well positioned for many. We help our clients control what can be controlled, to help them with life’s inevitable surprises – tax revenue related, or otherwise.


The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

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