Stocks posted modest losses in another volatile week. The Dow 30 Industrials posted an 800 point loss on Wednesday as the 10-year Treasury yield briefly fell below the 2-year Treasury yield. Also, the 30-year Treasury yield fell below 2% for the first time ever. The markets were moved on fear of the so called inversion of the yield curve. Historically, yield curve inversions have preceded 7 of the last 5 recessions. In other words twice, in 1966 and in 1998, the inversion did not precede a recession. When recessions hit, it was usually 14 months later and market peaks in most cases came later, sometimes as long as 18 months later. I think it is important to note that most of these inversions happened as the Federal Reserve hiked short term rates. We now have a situation where the Federal Reserve and central banks around the world are cutting rates. Inflation is running below the FED and most central bank’s targets, not the classic end of cycle conditions we have seen in the past.
The Trump administration announced it was delaying the tariffs on some consumer items until December 15th. However, China has pointed out that none of the recent tariffs are in accord with the verbal agreement reached between Trump and Xi at the G20 meeting.
Crude oil prices ended the week up to $54.93 a barrel. The 10-year Treasury yield ended down to 1.56%. The U.S. dollar ended up against a basket of currencies and gold ended up at $1523.60 an ounce.
In the numbers this week:
- China reported
- Producer prices fell 0.3% in July from a year earlier.
- Industrial output rose 4.8% from a year earlier, the slowest in 17 years.
- Germany reported that its gross domestic product shrank 0.1% in the second quarter.
- The Commerce Department reported that consumer spending rose 0.7% in July. As consumer spending accounts for 2/3 of the U.S. economy, this number reflects good growth.
- The Federal Reserve reported that industrial production fell 0.2% in July. Manufacturing, the largest component of industrial production fell 0.4% due to trade uncertainty. Utility production rose 3.1% due to hot weather. Mining, which includes oil and gas production, fell 1.8% largely due a halt in offshore production due to hurricane Barry.
- The Labor Department reported
- The consumer-price index rose 0.3% in July and 1.8% from a year ago. Excluding volatile food and energy consumer prices also rose 0.3% in July and 2.2% from a year ago.
- Non-farm productivity grew at a 2.1% annual pace in the second quarter and 1.8% from a year earlier. Unit labor costs rose at a 2.4% rate in the second quarter.
- First time claims for unemployment rose 9,000 to a seasonally adjusted 220,000 last week. The four week moving average of claims, designed to smooth out weekly fluctuations, rose to 213,750.
- The Energy Information Administration weekly report is here: wpsrsummary (3). Also, the EIA reported in the prior week:
- U.S. Crude oil production was unchanged at 12.3M barrels per day.
- Storage of natural gas rose 49BN cubic feet and is still below the past five year average for this time of year.
- Baker Hughes reported in the past week that the number of active oil rigs rose 6 to 770 and the number of active gas rigs fell to 165.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.