Everything to know about the market in 8 charts

by: , Portfolio Strategist, New York Life Investment Management

The second quarter gross domestic product (GDP) print is likely to be the strongest observed in several years, driven by consumers, businesses, and the government.

U.S. gross domestic product (GDP)

Percent changes

Source: Thomson Reuters DataStream, as of 6/28/18.

Household spending is up, due to strong income gains and an optimistic outlook.

U.S. personal spending and income

12-month percent changes

Source: Thomson Reuters DataStream, as of 6/28/18.

This booming economic activity is translating into soaring profits. First quarter profits were up 23.5%, year over year, and second quarter profits are projected to come in similarly strong.

Quarterly earnings growth (% YoY)

6/98 – 6/18

Source: Thomson Reuters DataStream. 6/28/18. EPS = earnings per share.

Still, market sentiment is depressed.

Market sentiment

6/08 – 6/18

Source: Thomson Reuters DataStream, as of 6/28/18. AAII = American association of individual investors, % bulls means the respondents.1; +1 stdev = 1 standard deviation above the average; Average = historical average; -1 stdev = 1 standard deviation below the average. Past performance is not indicative of future results. An investment cannot be made in an index.

The Federal reserve members and their new chairman, Jay Powell, seem stubbornly determined to keep a lid on inflation – begging the question: Will the fed choke off the economic growth?

U.S. headline Consumer Price Index (CPI) and contributions

Source: Thomson Reuters DataStream, as of 6/28/18. Past performance is not indicative of future results. An investment cannot be made in an index. Index definitions can be found at the end of this blog post.

Trade tensions between the U.S. and China show no signs of easing. The economic tariffs – announced so far – are small in scale, and have had little effect on global trade. Still, investors and businesses fear that tit-for-tat escalation could result in a full-blown trade war. And, other countries may get dragged in too, with the U.S. administration’s decision to levy tariffs on U.S. steel imports, angering key trading partners.

Global trade tracker

6/03 – 4/18

Source: Thomson Reuters DataStream, as of 6/28/18.

Concerns over trade and tightening monetary policy have best exemplified themselves in the form of a flattening yield curve.

U.S. Treasury yield curve steepness

1/85 – 6/18

Source: Thomson Reuters DataStream, as of 6/28/18. Past performance is not indicative of future results. An investment cannot be made in an index. Index definitions can be found at the end of this blog post.

Even with these risks, economic sentiment remains elevated, and is historically consistent with strong forward equity returns.

U.S. Economic Sentiment Indicator (ESI)

Quarterly annualized percentage changes

Source: Thomson Reuters DataStream, as of 6/28/18. Past performance is not indicative of future results. An investment cannot be made in an index. Index definitions can be found at the end of this blog post.

1. http://www.aaii.com/sentimentsurvey

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. New York Life Investments does not guarantee their accuracy or completeness, nor does New York Life Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

About Risk

All investments are subject to market risk, including possible loss of principal. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

Treasury Securities are backed by the full faith and credit of the United States government as to payment of principal and interest if held to maturity.

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months, and pays the face value to the holder at maturity.

The American Association of Individual Investors is a nonprofit organization with about 150,000 members whose purpose is to educate individual investors regarding stock market portfolios, financial planning, and retirement accounts.

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability.

The Economic Sentiment Indicator, abbreviated as ESI, is a composite indicator made up of five sectoral confidence indicators with different weights: industrial confidence indicator (40 %); construction confidence indicator (5 %); services confidence indicator (30 %); consumer confidence indicator (20 %); retail trade confidence indicator (5 %). The economic sentiment indicator is published monthly by the European Commission.

The S&P 500 Index is widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Standard deviation – A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment’s volatility.

New York Life Investments is a service mark and name under which New York Life Investment Management LLC does business. New York Life Investments, an indirect subsidiary of New York Life Insurance Company, New York, New York 10010, provides investment advisory products and services. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. NYLIFE Distributors LLC is a Member FINRA/SIPC.

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Robert Serenbetz

Portfolio Strategist, New York Life Investment Management

Robert Serenbetz is the Portfolio Strategist with New York Life Investment Management’s Strategic Asset Allocation & Solutions (SAS) Group. He contributes to investment thought leadership and communication efforts across New York Life Investment Management

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