NEWS
What Happened Last Week
The Conference Board Leading Economic Index showed a negative signal for the economy’s future health in September.
US GDP grew at an annualized 2.8% in Q3, which was below the estimates of 3%.
Excluding government spending, trade and inventories, domestic demand actually rose an annual 3.2% in Q3 versus 2.7% in Q2.
Consumer spending grew at the fastest pace since Q1 of 2023.
Gold hit a record high and has become a popular trend.
The US economy added 12,000 jobs in October, far below the estimated 113,000 due in part to the storms and strikes.
Investors are feeling less optimistic and even bordering on fear according to the AAII Investor Sentiment Survey and Fear and Greed Index.
How I See It
A negative signal was given as of September’s data of leading economic indicators (LEI).
This is not a perfect predictor, but here’s what we can learn from it:
- Material goods have suffered regular decline in activity over the past year, but their decline has accelerated in the past six months.
- The US economy is made up of demand for both goods (~20%) and services (~80%).
- This LEI reading skews its weighting towards a focus on goods which is not perfectly reflective of its importance to the whole US economy.
Alongside this news, US GDP also showed a weaker Q3 reading overall than expected.
That has dampened investors’ feelings about where the markets are heading.
And that fear, accompanied by a dip in the DOW and S&P 500 indices, has led investors to buy gold and push the price further to a temporary record high.
But what we’re looking for is either 1) deteriorating economic factors that are being widely ignored in combination with 2) investor sentiment that is in the extreme greed mode.
We’re not in extreme greed right now. There’s still plenty of fear and uncertainty, which is indicated by gold’s spike of more than 32% so far this year.
We’re not trying to jump out of markets when they drop for just a few days, weeks or even months. That’s a losing game. But identifying a bear market, which can last much longer, is a way to add long-term value if proper action is taken.
Here’s some encouragement: this is normal for markets to be choppy leading up to an election.
In all but three presidential election years going back to 1945, markets have been net positive by the end of the year following the election day.
Markets dislike uncertainty. They like certainty.
Electing our next President will do away with much of the current uncertainty about how companies and individuals plan for the years ahead.