Is a Major Economic Surprise on the Horizon?
Author: Greg Valliere
April 12, 2019
WHILE WAITING FOR HERMAN CAIN TO WITHDRAW from consideration as a Fed Governor — we’re betting on this afternoon — let’s take a look at the biggest potential 2019 surprise: the economy surges as warm weather arrives and GDP growth exceeds 2-1/2%.
THE ATLANTA FED HAS REVISED UPWARD its closely watched “GDP now” indicator to 2.3% growth for the first quarter — and the first quarter often is the weakest quarter of the year. With interest rates astonishingly low, housing and autos should rebound; with wages inching higher, real disposable income looks good; with taxes dramatically lower, business fixed investment should contribute to growth; with the China trade war likely to end by late spring, the farm belt slump and business uncertainty should begin to recede.
THE BIGGEST FACTOR is the remarkable amount of Washington stimulus in the pipeline. The Fed is arguably too dovish right now, as Mohamed El-Erian said yesterday, but the central bankers are determined to take a risk that the economy might over-heat; the Fed wants higher inflation. And fiscal policy is likely to stay stimulative, with more spending likely in the 2020 budget year, which starts on October 1.
EVERYONE SEEMINGLY HATES THIS STOCK RALLY, which snuck up on most Wall Street analysts after the bungee jump plunge just before Christmas. Many analysts were predicting a new bear market, yet here we are in mid-April with the stock market about to set record highs. And everyone seemingly dismisses the economic recovery, which this summer will become the longest expansion in U.S. history.
THE BUSINESS CYCLE HASN’T BEEN OUTLAWED: A recession surely is coming, perhaps in a couple of years, but something looks a little different: at the mere whiff of recession, the Fed will begin hinting that even more accommodative policies are possible. The Fed hasn’t been intimidated by Donald Trump; it has been intimidated by the stock market.
THIS IS VERY GOOD NEWS INDEED for Trump, now the favorite to win a second term. He has been more erratic than usual lately, alarming Republicans in Congress, but the public isn’t paying close attention.
THE GENERAL PUBLIC sees solid economic growth, and if GDP expands by about 2-1/2% this year, that will be more than enough to create new jobs. So we won’t spend any time worrying about an inverted yield curve; there’s surprisingly little to worry about — except, perhaps, an economy that could begin to over-heat by summer.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI is registered as a portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2020 AGF Management Limited. All rights reserved.