The barrage of negative economic and political headlines has resulted in a strong feeling of uneasiness in the mindset of investors, which we can understand. Long-standing risk factors such as China tariffs and Brexit are still unresolved, and with the impeachment investigation underway in the U.S. the occupancy of the Oval Office in 2021 is far from decided. Despite the fixed income warnings and rising tension between countries and across political lines, U.S. equity markets have remained resilient and are currently approaching all-time highs. Is there a disconnect, or are we only hearing and seeing half the narrative?
The other half (perhaps the better half) that is not receiving its fair share of headlines is the health of the U.S. consumer. Consumer balance sheets are healthy, wages are moving higher, and the U.S. economy continues to create jobs. The average job growth per month in 2019 has been 160,000. To support, U.S. interest rates are near recent lows and providing a refreshed tailwind to the housing market. We admit not every sector is rosy; retail and manufacturing continue to shed jobs, but that has been more than offset by job growth in healthcare and technology.
There will always be a litany of economic, regulatory, and political concerns for equity markets to contend with, and the nature of media, especially financial media, is to emphasize the negative. We think it’s important to present a balanced assessment of the risks that considers not only what makes the headlines, but also what does not. We acknowledge the risks to the economy and corporate earnings from trade tariffs and other factors, but also consider the offsets such as the health of the consumer, which drives nearly two-thirds of the economy. While we believe future returns will be lower than in recent years, we are still optimistic over the near-term and do not foresee a recession.