Weekly Market Digest: What Does a Decline in Durable Goods Demand Mean for the Economy?

This week, the U.S. partially backtracked on removing a military presence from Syria, Britain’s Prime Minister pushed for extensions to the Brexit deadline in addition to a snap vote in December, and mixed earnings reports from US companies were released.

Large international companies such as Caterpillar cited global uncertainty as a continued headwind. Airlines which have been reliant on Boeing’s 737 Max remain in an uncomfortable position as the model remains grounded. Amazon’s focus on improving its prime experience cut into its profits.

On the positive side, Tesla surprised investors with a quarterly profit, where analysts had expected a loss. The profit was largely attributed to controlling costs and increasing output of its relatively inexpensive Model 3. Paypal’s earnings release this week showed more strength than expected as well, around its money transfer app Venmo, as well as an overall increase to Paypal’s user base.

Weekly Returns

S&P 500: 3022 (1.2%)
FTSE All-World ex-US(VEU): (1.3%)
US 10 Year Treasury Yield: 1.80% (2.33%)
Gold: $1,504.74 (1.0%)
EUR/USD: 1.11 (-0.8%)

Major Events

  • Monday – News released detailing that some Boeing employees felt pressure around gaining regulatory approval on Max’s systems.
  • Tuesday – The U.S. Fed took additional steps to provide short term liquidity in financial markets.
  • Wednesday – Another round of power blackouts occurred in California as utility company PG&E attempts to prevent further fires.
  • Thursday – The U.S. weekly jobless claims report was released, showing a surprise reduction in unemployment claims for the prior week.
  • Friday – The S&P 500 closed in the green for a third week in a row, stopping short of an all-time high.

Our Take

This week, there was some renewed focus on some signs that the global economy is slowing. One such sign was a report on the U.S.’ durable goods orders for the month of September, which declined by more than 1% from August figures.

Before you start heading for the exit – here’s a bit more detail around ‘durable goods.’ Durable goods are goods that are intended to last for 3 years or more. Things such as automobiles and airplanes are included in this figure.

Consider this for a moment – what are some very large US companies that have had some significant headwinds recently? Boeing & General Motors certainly come to mind, with Boeing’s continued struggles with its 737 Max grounding (and therefore reduced sales) and GM’s large-scale, long-lasting worker strike dramatically cutting into 2019 production & sales.

While Boeing and GM are likely significant contributors to last month’s decline in durable goods demand, they aren’t the only reasons for it either. This was overlooked by many investors, who may have read the news as ‘bad’ without digging in enough to understand the detail.

Just as we lead today’s post with commentary on positive and negative earnings reports, news around the markets abound, and both positive and negative signs exist.

While concerns about global economic growth mount, 2019 as a whole has been a very strong year for many asset classes. Stocks, Bonds, and Alternatives, depending on the specifics, are all largely positive year to date.

Even bonds this year have largely surpassed the interest rates available in savings and CD accounts. We could spend a lot more time here on the bond category, however the key point is that in spite of evidence that led many to believe bonds were bad, bonds have not actually been a bad investment.

In the face of all this good, bad, and neutral news, we’ll continue to maintain globally diversified portfolios for most of our clients, in an attempt to weather all the markets will give in the years to come.

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