Beyond all the twists, turns, and quirks in the economic data reports, the overall picture appears largely the same. Growth remains on a moderate track, somewhat beyond a long-term sustainable rate (as the job market continues to tighten).
As we transition from Q3 to Q4, the global economy and markets seem much like that third bowl of porridge in the Goldilocks story – everything is just right.
As expected, hurricanes Harvey and Irma had a significant impact on the nonfarm payroll data. However, it’s impossible to say exactly how much. The distorted September payroll figures were never going to be a factor in the Fed policy outlook. There will be two more employment reports before the mid-December policy meeting and we can expect a recovery from hurricane effects.
Investors don’t pay much attention to the monthly report in personal income and spending. We already have a good handle on income from the employment report. Unit auto sales and the retail sales data tell us a lot about consumer spending.
As expected, the Federal Open Market Committee left the federal funds target range unchanged (at 1.00-1.25%) after its September 19-20 policy meeting. The FOMC also announced the beginning of balance sheet reduction. The Fed had outlined how this would work in mid-June, and officials did a good job of telegraphing when it would start.
Investors all over the world often prefer to stay in their home markets. But at what cost? Going global can open up a world of choice to help improve a portfolio’s equity risk and return profile.
In her post-FOMC press conference, Federal Reserve Chair Janet Yellen is expected to provide a concise evaluation of the current economic situation. That includes a discussion about the recent trend in low inflation and the economic impact of hurricanes Harvey and Irma. She is not expected to signal what the Fed will do with short-term interest rates in the months ahead.
There’s an ongoing narrative about the energy industry that says exploration and production (E&P) companies are making money in unconventional shale plays, even with oil selling for only $50 a barrel. This is touted as a positive trend. But a deeper dive into energy company fundamentals suggests a vastly different story — one that prioritizes production volume over economic value.
Summer is normally a pleasant time, but most Americans are likely to be happy to have August 2017 in the rear view mirror. Civil unrest, tensions abroad, devastation and destruction – yet, the stock market continues to improve.
As we publish this month’s Commentary, Hurricane / Tropical Storm Harvey continues to pummel Houston and the surrounding areas. The flooding is intense, the damage will be massive, and there will be tremendous human and economic suffering as the rains subside and the waters all-too-slowly recede.