As discussed in our July letter, the narrative continues around two markets: the economy and the stock market. The latter of the two has largely been buoyed by the incredible growth of the “Magnificent 7” and corporations using, selling, or investing in AI. This past week, second quarter real Gross Domestic Product (GDP) was revised higher from the initial estimate of 2.8% to 3%, which is hardly recessionary. Generally, both have been trending in a positive direction, but plenty of crosscurrents remain that could lead to slower economic growth.
Positively, earnings estimates and revisions for publicly traded companies continue to show strength, even in the face of rising unemployment (Figures 1 & 2). While some of the rise in the unemployment rate is due to an increase in the labor force (not a decline in labor demand), there has been a degree of softening in the labor market.
(Figure 1 – Earnings estimates) (Figure 2 - Unemployment)
According to USA Today, small businesses contribute 43.5% to US GDP. They also account for 99.7% of firms with paid employees. So, while those fortunate enough to own a home and financial assets have seen strong price appreciation over the past decade, there is a cohort of Americans who are falling further behind on their credit card payments. Even though you can’t “spend your house on groceries”, the wealth effect is real and should support continued spending for those who see an increasing net worth. (Figures 3 & 4) (Figure 3 – Average home price) (Figure 4 – Credit card delinquencies)
And, while it almost sounds fictitious to say that whichever candidate is selected this November “doesn’t matter” to the stock market, historically, the makeup of Congress has had a more pronounced impact on returns. One thing is certain, however; we expect more market volatility leading up to the election.
Regardless of the economy, markets, or the election, our goal at LVM is to help you reach your financial goals. We appreciate your continued confidence in us as we navigate these interesting times.
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