Tag Archives: Consumer Confidence

Schwab Sector Views: New Sector Ratings for the New Year | Charles Schwab

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By Schwab Center for Financial Research

Macro environment:  Rising stocks and Treasury yields, fading U.S. dollar

We [Charles Schwab] continue to see a gap between the health of the manufacturing sector and that of the services sector and consumers. Despite recent U.S.-China trade war de-escalation, manufacturing activity remains under strain from ongoing tariffs, new tariff threats and still-elevated trade policy uncertainty, combined with slow global growth. On the other hand, the services sector continues to thrive amid strong consumer confidence and consumption, in large part due to a strong job market. 

While economic momentum overall has slowed, we do see signs of stabilization in both the United States and abroad. Accommodative monetary (central bank) and fiscal (tax cuts and government spending) policies have provided a strong tailwind for the global economy.

The signing of a “phase-one” trade deal between the U.S. and China, combined with congressional passage of the new U.S.-Mexico-Canada (USMCA) trade pact, have eased some trade uncertainty. Amid this apparent global economic revitalization and shrinking trade risk, Treasury bond yields have risen, the value of U.S. dollar has declined and U.S. stocks have advanced to record highs.

However, geopolitical risks—while reduced somewhat—remain elevated, and equity valuations are high. Given this combination, we think bouts of increased volatility and more frequent pullbacks are possible. This doesn’t necessarily mean the rally won’t keep going—it’s likely the strong momentum in stocks may continue until there is a catalyst sufficient to deflate the current extremely bullish investor sentiment—but the risks need to be considered.

— Read on www.schwab.com/resource-center/insights/content/sector-views

Schwab Sector Views: New Sector Ratings for the New Year | Charles Schwab

Posted on by

Macro environment:  Rising stocks and Treasury yields, fading U.S. dollar

We continue to see a gap between the health of the manufacturing sector and that of the services sector and consumers. Despite recent U.S.-China trade war de-escalation, manufacturing activity remains under strain from ongoing tariffs, new tariff threats and still-elevated trade policy uncertainty, combined with slow global growth. On the other hand, the services sector continues to thrive amid strong consumer confidence and consumption, in large part due to a strong job market. 

While economic momentum overall has slowed, we do see signs of stabilization in both the United States and abroad. Accommodative monetary (central bank) and fiscal (tax cuts and government spending) policies have provided a strong tailwind for the global economy. The signing of a “phase-one” trade deal between the U.S. and China, combined with congressional passage of the new U.S.-Mexico-Canada (USMCA) trade pact, have eased some trade uncertainty. Amid this apparent global economic revitalization and shrinking trade risk, Treasury bond yields have risen, the value of U.S. dollar has declined and U.S. stocks have advanced to record highs.

However, geopolitical risks—while reduced somewhat—remain elevated, and equity valuations are high. Given this combination, we think bouts of increased volatility and more frequent pullbacks are possible. This doesn’t necessarily mean the rally won’t keep going—it’s likely the strong momentum in stocks may continue until there is a catalyst sufficient to deflate the current extremely bullish investor sentiment—but the risks need to be considered.
— Read on www.schwab.com/resource-center/insights/content/sector-views

Democracy and Economic Opportunity

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Frustration with polarizing politicians, unequal wealth distribution and personal economic opportunities breed dissatisfaction with democracy in America

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”
– Winston Churchill

A Pew Research Center survey found that the discontent that many citizens of democratic countries feel are tied to concerns about the their respective domestic economies, individual rights and out-of-touch elites. Furthermore, most believe elections bring little change, that politicians are corrupt and out of touch and that courts do not treat people fairly. On the other hand, citizens are more positive about how well their countries protect free expression, provide economic opportunity and ensure public safety.

Several surveys of how well democracy is working for the average citizen vary considerably across nations. In Europe, for example, more than six-in-ten Swedes and Dutch are satisfied with the current state of democracy, while large majorities in Italy, Spain and Greece are dissatisfied, according to the Pew Research Center survey. Thus, it is safe to assume that citizens per capita income and their respective country’s economic business cycle seem to impact democratic dissatisfaction differently in some advanced and emerging economies.

Furthermore, it appears that there is a considerable correlation between the prevailing views of the domestic economy and the assessments of democratic performance. If the domestic economy is growing and the perceived distribution of wealth are seen as relatively equitable, then people tend to have a more favorable view of democracy.

Source: RICHARD WIKE, LAURA SILVER, AND, ALEXANDRA CASTILLO, “Many Across the Globe Are Dissatisfied With How Democracy Is Working”, APRIL 29, 2019

Consumer Spending and Confidence

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U.S. Consumers remain confident, strong and spending.

Consumers haven’t cut back spending even as their worries grow. Consumer spending represents about 70% of U.S. economic activity. Nevertheless, U.S. Consumer cannot save rest of world economically, but they can insulate the U.S. economy from the slowing global economic growth particularly in Asia and Europe. The U.S. economy is relatively self contained, but it’s not an isolated island and it can be affected by what’s happening in the rest of the world.

U.S. consumer is in a good place because the labor market remain strong. Despite the silly talk from financial entertainment media pundits about U.S. economy going into recession during calendar year 2019, the main risk for consumers are the alarmist recession headlines which may create a self-fulfilling prophecy.

But waning confidence could cause them to cut back their spending in the months ahead, potentially weakening the economy. A measure of consumer confidence fell in August to the lowest level since the start of the year. Additionally, a gauge that measures what consumers think about their own financial situation and the current health of the economy fell to a nearly two-year low. Monetary and trade policies have heightened consumer uncertainty—but not pessimism—about their future financial prospects.

The main takeaway for consumers from the first cut in interest rates in a decade and from a brief inverted yield curve was to increase apprehensions about a possible recession. Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession. Falling interest rates and am inversion of the U.S. Treasury yield curve have long been associated with the start of recessions.

Source: Surveys of Consumers. University of Michigan, http://www.sca.isr.umich.edu/.