The central theme in the first 19 months of the Trump presidency is strong economic growth. The evidence suggest that the US economy, already surprising many economist on the upside, continues to expand and is perhaps accelerating. While the last GDP estimate for Q2, reporting at 4.2 percent, beating expectations, the current data show that the economy may be accelerating to 4.6 percent – a number that is shockingly higher given the economic recovery is late in the cycle.
Overnight, the August Payrolls number was released. This is a package of employment numbers that gives details on the number of jobs created in the previous months and is broken down by industry. The August Payrolls rose by a better-than-expected 201,000 and wages increased by 2.9 percent over the year. This means that more people are working and their wages are moving higher. But it gets better. The unemployment level, the number of people not working, is near a 50-year low, while the stock market has jumped 27 percent as corporate profits are moving higher. These numbers are beyond the most optimistic expectations.
Many Wall Street economists believe that this bull run will not last – especially the Democrats, and in some cases, Republicans.
Team Classiarius – Our View on the Economy and Stock Market
A lot of the growth we are now seeing is driven by tax cuts that, in due time, will be less effective. Still, for now, with a strong labor/employment component of the economy, and corresponding strong consumer and corporate confidence, the economy could continue higher. Manufacturing and exports indicate strength, at least into 2019. But there is one concern that have, and it is growing.
While all of these figures are strong, we cannot ignore the fact that September is historically a month that sees weaker stocks markets, and specifically in our view, markets that are overbought and could see a short but somewhat deep correction lower.
For now the next 3 to 6 weeks we see short-term stock weakness and a possible pull back (these are not trade recommendations), then consolidation when the US Fed policy becomes clear, and a continued economic expansion and robust equity market.
Final note – the trade tensions with China, combined with the recent market disruption in emerging market currencies and stocks would bring into play more contagion fears. We will be updating you on these issues in the coming weeks.