September 3, 2019

The August trade war with China reached a fever pitch on Tuesday, August 13, after President Trump tweeted that he would retaliate to the new tariffs on U.S. imports by raising tariffs on Chinese imports, sending the Dow down 800 points the next day, but August closed on a three-day uptick for the major averages, boosted by a rising narrative that the U.S. consumer is feeling pretty good about their present situation. In fact, the Present Situation Index is now at its highest level in nearly 19 years. While other parts of the economy may show some weakening, consumers remain confident and willing to spend.

Why? Consumers’ appraisal of the job market is favorable. According to the Conference Board, “Those saying jobs are ‘plentiful’ increased from 45.6 percent to 51.2 percent, while those claiming jobs are ‘hard to get’ declined from 12.5 percent to 11.8 percent.” The U.S. is a consumer-driven economy, and this past week’s GDP estimate for 2.0% showed that the trade war hasn’t materially impacted spending trends.

A Briefing.com note added, “The key takeaway from the report is that consumer spending growth was revised up to 4.7% from 4.3%, which was the strongest growth since the fourth quarter of 2014. Granted it’s a backward-looking data point, yet it offers a nice reminder that the U.S. consumer, supported by a tight labor market, has remained in good shape.” Lower borrowing costs within a $21+ trillion economy is acting as a huge lever and the Fed is going to keep the consumer jazzed with a rate cut on September 18.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Who would have wagered a lunch at a Wall Street food truck that the big box retailers would be the hottest sector during August with trade tensions boiling over? Shares of Target, Walmart, Home Depot, Lowe’s, and Costco soared last month. Just as a side note, Costco opened its first store in Shanghai and had the local police limit the number of customers occupying the store at any given time to 2,000! I guess Costco consumers in Shanghai didn’t get the memo that there’s a trade war going on with the U.S.

(A few Navellier & Associates clients own positions in Walmart, Home Depot, and Costco, but not in Target and Lowe’s. Bryan Perry does not own Target, Walmart, Home Depot, Lowe’s, and Costco in personal accounts.)

It’s not just the robust consumer at work that will counteract negative investor sentiment. It’s the simple fact that money goes where it is best served. Hedge fund Hayman Capital’s manager Kyle Bass, whom I view as pretty sharp and transparent, stated in a CNBC interview on August 20 that, “We’re the only country that has an integer in front of our bond yields…. We have 90% of the world’s investment-grade debt. We actually have rule of law and we have a decent economy. All the money is going to come here.”

All this good news regarding an upbeat consumer comes at a time when investor sentiment is in the tank. The latest AAII survey has bullish sentiment down to 26.1%, well off its 38% historical norm. The good news about this survey is that it happens to be one of the most accurate contra-indicators that signals market tops and bottoms. If past is prologue, a low bullish reading is a green light to add equity risk.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Is the Baltic Dry Index Signaling a Global Economic Recovery?

The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal, copper, cement, and iron ore. The Baltic Exchange calculates the index by assessing multiple shipping rates across more than 20 routes for each of the BDI component vessels. Members contact dry bulk shippers worldwide to gather their prices and then they calculate an average. The Baltic Exchange issues the BDI daily.

Since it measures a variety of raw materials on order for the production of intermediate or finished goods, the BDI can be seen as a leading economic indicator for future economic activity. During this past week, the Baltic Dry Index traded to a fresh nine-year high capped by a torrid seven-day straight up rally.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

I’m not making a call on a sudden global economic rebound, but I am bringing to light an identifier that got my attention this past week. Since the majority of economic data is backward-looking, it makes sense to pay attention to the BDI for clues that defy the widely held bearish narrative regarding global growth.

The BDI is quite possibly a healthy tea leaf amid a very crowded field of very thorny prognosticators.

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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