Investment Commentary – January 7, 2020

Year to Date Market Indices as of Market Close January 7, 2020
• Dow 28,583 (-.42%)
• S&P 3,237 (-.28%)
• NASDAQ 9,068 (-.03%)
• Gold $1,578
• Oil $62.95

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3Q19 real GDP growth came in at 2.1%, driven by consumption and with positive contributions from government spending and housing that were partially offset by business fixed investment and net exports. The manufacturing sector continues to falter, with the Markit manufacturing PMI dipping slightly to 52.4 from 52.6 as business confidence remains subdued and costs rise. ISM manufacturing fell to 47.2 from 48.1, as new orders, production and employment weakened.


November headline CPI rose 0.3% m/m and 2.1% y/y, while headline PCE rose 0.2% m/m and 1.5% y/y, driven by increases in energy. However, core CPI rose 0.2% m/m, increasing 2.3% y/y, and the core PCE deflator increased slightly by 0.1% m/m and 1.6% y/y. While headline inflation inches up as oil prices trade higher, core inflation remains range bound.


The FOMC maintained the federal funds target rate at a range of 1.50%–1.75%, a unanimous decision from all voting members. The FOMC noted that “the current stance of monetary policy is appropriate to support sustained expansion of economic activity,” suggesting it intends to remain on pause over the medium term. It also acknowledged that muted inflationary pressures and global developments—a nod to ongoing trade tensions—will be closely monitored going forward. Looking forward, the bar remains high for the Fed to adjust interest rates in either direction at least through 2020.

Thought of the week

Last week, the U.S. Census Bureau released population estimates through July 1, 2019, revealing a continued slowdown in population growth. The population grew by just 0.5% or 1.5 million people, which is by some estimates the slowest growth rate in a century. This was driven by two factors: a decline in both the natural increase in population and net international migration. The natural increase, which is the number of births minus deaths, fell to one of the lowest levels since the Great Depression, while births themselves decreased to levels not seen since the mid-1980s, and deaths continued to rise. Net international migration fell to 595,348, nearly half the level it was just a few years ago, also the lowest in decades. Slower population growth has significant implications for long-term growth because it limits both demand itself and the ability to meet demand. With weaker population growth, there is less demand in key sectors of the economy, such as housing and autos, and consumption broadly. For the demand that does exist, companies may have trouble meeting it given that the pipeline of available workers is not being adequately replenished by population growth or migration as older generations retire. In short, from both a supply and demand perspective, slower population growth makes it harder to achieve even 2% GDP growth in the long run.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.