This Week's News About Wealth Management

September 11, 2017

The Federal Reserve's August beige book forecasted broad-based, steady growth that is neither too hot nor too cold, a "Goldilocks economy."

 

It's an ideal environment because it suggests the Fed will not feel compelled to hit the monetary brakes any time soon, particularly with inflation slowing down.

 

The Institute of Supply Management's survey of corporate purchasing managers index came in this week at a very strong 58.8% for August. This indicator historically has slumped below 50% just before the economy fell into recession, although it has slipped below 50% even in a period of expansion.

 

The new orders component of the manufacturing purchasing manager index - a forward-looking metric of business orders in the pipeline at large companies - was exceptionally strong as well in August, at 60.3%. 

 

ISM: "A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A PMI in excess of 43.1 percent, over a period of time, generally indicates an expansion of the overall economy."

***

 

Of course, the manufacturing sector accounts for only about 12% of all economic activity and the non-manufacturing sector accounts for the vast majority of U.S. growth. The survey of managers in non-manufacturing strengthened from 53.9% in July to 55.3% in August, well-above the 50% line where recessions sometimes follow. While the non-manufacturing index has only a limited history, it is also well above the 50% level at which recessions are sometimes more likely to occur.

 

Of the 10 components of the index, the forward-looking benchmark of new orders rose from 55.1% to 57.1% in July. Since businesses outside of the manufacturing sector account for about 88% of all economic activity, this indicates the growth in the pipeline for the U.S. is intact.

 

This data series was created in 2008. ISM: "A reading above 50 percent indicates that the non-manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting."This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

 

***

 

At 99-months old, this expansion and bull market is cruising toward becoming the longest on record in Post-War II America because it takes a Fed mistake to cause a recession - by slowing a hot economy susceptible to rising inflation or by raising interest rates too much. Since growth is lately coming with almost no inflation, the Fed is nowhere even close to considering monetary tightening.

 

Recessions trigger bear markets, but the converse is not true; not every bear market has always been accompanied by a recession.

 

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  It is a market value weighted index with each stock's weight in the index proportionate to its market value. You cannot invest directly into an index.

 

***

 

Driven by the strong economy, the price of the Standard & Poor's 500 stock index has repeatedly broken its all-time record-high price since the start of the year, in a strong new leg of the eight-and-a-half-year bull market. The close on Friday of 2461.43 was less than 1% off from the all-time record closing high reached on August 7. At any time, however, political uncertainty, a natural disaster, North Korea, or some completely unexpected crisis could trigger a 15% drop in stock prices. But the economy shows no sign of weakness and a recession-driven bear market is not on the horizon. In fact, the Goldilocks conditions are just right for the virtuous growth cycle to continue, which means stock prices could also be driven much higher as the good times roll along.

 

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  It is a market value weighted index with each stock's weight in the index proportionate to its market value. You cannot invest directly into an index.

 

***

 

This article was written by a professional financial journalist for PGWM, LLC., and is not intended as legal or investment advice. © 2017 All Rights Reserved

 

 

 

 

 

 

Share on Facebook
Share on Twitter
Please reload

RECENT POSTS
Please reload

Investment advisory services offered through (RIA Name), a registered investment adviser. This site is published for residents of the United States only. Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of the services referenced on this site are available in every state and through every advisor listed. For additional information, please contact PGWM, LLC at rar@pgwm.net.

© 2019 Private Group Wealth Management, LLC  

221 A Louisiana Ave, Corpus Christi, TX 78404

Tel: (361) 442-5105      Fax: (361) 888-5105       email: rar@pgwm.net

DISCLOSURES   PRIVACY   FORM ADV    CONTACT    HOME

Website Maintenance    ID•GRAPHICA   idgraphica.custom@gmail.com