Quote of the Week
“A healthy male adult bore consumes each year one a half times his own weight in other people’s patience.” – John Updike, novelist
Tuesday (today) is the big day; we should have a record turnout for this election. I will be brewing a pot of coffee and watching the results. I might even stay up until 9:00 PM. We should have an indication early in the evening because some states are already counting their mail-in ballots. The two swing states I will be looking for an indication of are Florida and Arizona.
I don’t have much to say this week. It would be mere speculation on my part where the markets go from here, depending on who wins. So, we are sticking with our mathematical process.
Last week the markets took a deep dive with the Dow down -6.5%, the S&P 500 down 5.6%, and the Nasdaq down 5.5%. We didn’t.
My opinion is that the virus’s expansion will have a profound effect over the next 2-3 months. One of the things we look for in our mathematical process is the “rate of change.” With the infection “rate change” expanding exponentially, I can see it dominating the markets in the future. It is tough to slow the trend when it is increasing. I will have more to say next week after the dust settles.
Third-quarter GDP: Record growth, but closing the output gap will take years
OCT. 29, 2020 BY JOSEPH BRUSUELAS
Top-line growth of 33.1% in the third-quarter gross domestic product woefully overstates the impaired condition of the American economy that is still in need of robust fiscal support and monetary accommodation to close a prodigious gap between actual and potential growth.
An intensifying pandemic and probable lack of another round of fiscal aid this year will almost certainly dampen overall economic activity to close the year and to begin 2021.
A number of months ago, one would have expected this to be a major moment in the economic and policy affairs of the nation. Rather, it has been overrun by events on the ground, as a monumental second wave of the pandemic appears to be building, in addition to the uncertainty surrounding the election.
Accordingly, we expect growth to slow to 2.75% in the current quarter and 2.2% in the first quarter of 2021. Should the configuration of power in Washington change, then we will likely update that forecast on expectations of large and sustained fiscal aid next year.
While the 40.7% increase in household consumption and 83% jump in gross private investment point to underlying resilience in the economy, there is a long way back to full employment and full potential. In our estimation, it will be a number of years before that gap is closed and jobs become plentiful.
Claims that the economy is now in a super V-shaped recovery should be discarded amid a recognition that the low-hanging fruit of the early portion of the economic reopening has been picked and that the hard work of reconstruction and reconciliation await.
Inside the report, which was released by the Commerce Department on Thursday, a 45.4% increase in goods consumption, an 82.2% rise in spending on durables and a 38.4% jump in service activity were the major contributors to the out-of-this-world increase in household spending.
Business fixed investment climbed 28.5%, which was driven by a 70.1% increase in outlays on equipment. Investment in structures declined by 14.6% and the acquisition of intellectual property dropped by 1%. As expected, residential investment soared by 59.3%, and nonresidential investment increased by 20.3%.
Exports jumped by 59.7% and imports increased by 91.1%, while overall government consumption dropped by 4.5%. Federal outlays contracted by 6.2% and state and local spending fell by 3.3%. Change in private inventories declined by 0.04%.
Alternative measures of GDP implied a more modest rate of expansion, with real final sales increasing by 25.5% and final sales to domestic purchasers rising 29.2%. Gross domestic purchases increased at a 36.8% rate, while final sales to private domestic purchasers advanced at a 38.1% pace. Disposable personal income declined by 16.3%.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
These are the opinions of Larry Lof and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.
The S&P 500 is an index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly.
Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.