5 Indicators on our Radar Screen

by: , Managing Director and Senior Portfolio Manager, New York Life Investment Management

The sell-off in equities following December’s fateful FOMC meeting served as a clear indication that investors were concerned a monetary policy mistake has been made, and the end of the expansion was near. While the Fed likely did err in December, they’ve since made amends. They acknowledged the global economic soft patch and put future rate hikes on hold. The Fed may have stabbed the expansion in the back, but by our lights it appears to be a mere flesh wound, not murder.

Looking ahead, tighter monetary policy, trade concerns, and the government shutdown has slowed the economy. Slower growth – compounded by the additional one-off effects on the anniversary of the new tax law – is likely to produce some sloppy profit reports for the first quarter, but conditions thereafter look favorable.  Real rates are still quite low, consumer confidence is rebounding while household income continues to expand, fiscal stimulus is ramping up outside the U.S. (most notably in China), further progress on a trade agreement seems likely, and businesses continue to invest in themselves through both capital expenditures and buybacks.

That debate over continued favorable conditions or the end of the expansion can be closely monitored in five indicators:

1. Corporate Earnings Announcements

April announcements are expected to be sloppy, so we’re paying especially close attention to profit margins for signs that rising wages are squeezing the bottom line.

Profits Before Taxes

S&P 500 Profits Growth

Source: Thomson Reuters DataStream, IBES, Bureau of Economic Analysis, 4/2/19. NIPA profits represent the net income of corporations in the National Income and Product Accounts, which represent the earnings of the entire economy. The S&P 500 profits represent the profits of the 500 largest companies in the U.S. An investment cannot be made in an index. Past performance is no guarantee of future results.

2. Homebuying

The spring homebuying season is getting underway. While residential investment makes only a small contribution to economic activity, it tends to be a useful gauge of the general health of an economy.

Residential Investment

Source: Thomson Reuters DataStream, Bureau of Economic Analysis, 4/2/19.

3. Trade Wars

A successful outcome to U.S./China trade negotiations would go a long way toward reinforcing investor sentiment and encouraging business capital expenditures, so we monitor progress.

Business Capital Expenditures

Source: Thomson Reuters DataStream, Bureau of Economic Analysis, 4/2/19.

4. Yield Curve

The partial inversion of the yield curve has caught everyone’s attention. We don’t view it as a cause for alarm, but it is something of which we are mindful.

U.S. Treasury Yield Curve

Source: Bloomberg, U.S. Department of Treasury, 4/2/19.

5. Employment

New unemployment claims have settled back down after a modest, but dismaying bump earlier in the year. A more persistent rise would be worrisome.

Unemployment

Source: Thomson Reuters DataStream, U.S.Department of Labor, 4/2/19.

About Risk

Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value. Asset allocation and diversification cannot assure a profit or protect against loss in a declining market.

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

Definitions

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

yield curve is a curve on a graph in which the yield of fixed-interest securities is plotted against the length of time they have to run to maturity.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

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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Jonathan Swaney

Managing Director and Senior Portfolio Manager, New York Life Investment Management

Jon is a Managing Director and Senior Portfolio Manager with New York Life Investment Management’s Multi Asset Solutions (MAS) team. His current focus is on management of the MainStay and third party asset allocation strategies.

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