The Fed cut rates, the ECB officially launched QE, and a parade of administration officials touted progress on the ever elusive China trade deal for the 100th time and voila: Markets breaking out to new highs. But is the breakout a fake out?
Let’s explore some uncomfortable facts, charts and perspectives.
Firstly, and don’t laugh too much, let’s at least mention fundamentals.
GDP growth keeps slowing:
Earlier this week, the Commerce Department released Q3 GDP figures, which showed a marked slowdown year over year compared to Q3 2018. Real GDP growth has slowed this year from 2.9% to 1.9%. Personal consumption has slowed from 3.5% to 2.9%. Services have slowed from 3.4% to 1.7%. And gross private investment slowed from 13.7% to negative 1.5%.
On Friday, the same day markets broke to new highs the Atlanta Fed pegged Q4 GDP at 1.1% while the New York Fed Nowcast dropped their Q4 GDP growth projection to 0.8%.
Now show me some history where markets sustained new all time highs with 1% GDP growth in Q4. Best of luck.
On Thursday the Chicago PMI missed expectations hard coming in at 43.2 versus 47 expected:
And on Friday ISM manufacturing also shows continued contraction at 48.3% albeit a slight improvement over September which came in at 47.8%.
The cheers on Friday? Supposedly the employment report as it beat lowered expectations,