Although new data continued to show strength in the U.S. economy, markets stumbled across the globe last week. While U.S. and international stocks followed similar paths last week, data is beginning to show that our economic outlooks may be very different for the moment.
U.S. Strength in a Growing International Divide
The latest labor report helped underscore some of the differences between the U.S. economy and the rest of the world. While the data missed the mark for new jobs added, September marked the 96th-straight month of job growth and the lowest unemployment level since 1969. The report pushed interest rates higher, which contributed to last week’s equity losses.
However, when describing our economy, Federal Reserve Chair Jerome Powell said it is experiencing “a particularly bright moment.”
Global Growth Adjustments
At the same time, the International Monetary Fund (IMF) indicated that it would decrease its global economic growth predictions. The IMF hasn’t downgraded its forecasts since 2016. Currently, more risks are beginning to emerge from trade tension to political challenges in Europe. In particular, the rise in oil prices, the U.S dollar, and interest rates are hurting emerging economies.
HSBC mirrored this divide, cutting its global economic outlook while upgrading U.S. numbers.
A Look Ahead While Looking Back
As the labor market tightens, inflation could rise bringing even more interest rate hikes from the Federal Reserve. While rising rates bring their own set of risks, they are ultimately a sign that the economy is growing. On the other hand, when the Fed lowers rates, they do so because the economy is slowing.
This week, we mark the 11th anniversary of the markets hitting their highest pre-recession point on October 9, 2007. At that time, hopes that the Fed would lower rates again contributed to the new record highs. In the ensuing months, the Dow lost more than half its value as the Great Recession began.
While markets were down last week, they were still far ahead of their highs from 2007. The Dow closed at 14,164.43 on October 9, 2007 and ended at 26,447.05 on October 5, 2018.
Investors have experienced quite a ride in the past 11 years, but the market’s long-term growth is undeniable. Risks are here, as they always are, but we are here to help you understand and navigate those risks, no matter what the markets bring.
Monday: U.S. Holiday: Columbus Day
Thursday: CPI, Jobless Claims
Friday: Import and Export Prices, Consumer Sentiment
This day in history:
On this day in 1871, flames spark in the Chicago barn of Patrick and Catherine O’Leary, igniting a two-day blaze that kills between 200 and 300 people, destroys 17,450 buildings, leaves 100,000 homeless and causes an estimated $200 million (in 1871 dollars; $3 billion in 2007 dollars) in damages. Legend has it that a cow kicked over a lantern in the O’Leary barn and started the fire, at least that's what the song we used to sing at camp as a kid stated. However, other theories hold that humans or even a comet may have been responsible for the event that left four square miles of the Windy City, including its business district, in ruins.
Quote of the week:
“My old father used to have a saying:
If you make a bad bargain,
hug it all the tighter.”
— Abraham Lincoln
PUBLISHED BY NICK TOADVINE