Economic and Stock Market Commentary

Drama on the trade front had been the dominant theme on Wall Street during the third quarter, with the ebb and flow of news stories at times producing sharp swings in equity prices. This is understandable, given the positive impact on U.S. economic activity that measurable progress on this front would bring. Conversely, failure to reach a détente would hamper growth. Lately, the news has been somewhat better, as the United States and China seem open to possible compromises. Still, even with slightly less combative positioning, months if hard bargaining probably lie ahead.

Now, however, reports from the business activity front are taking center stage. There, for example, recent weeks have seen a step-up in personal income growth, but a nascent slowdown in consumer spending and decelerating gains in orders for durable goods (amid concerns about investment spending). Most ominously, the past week has seen a notable contraction in manufacturing activity, with that key sector turning in its worst showing in a decade. Such a labored economic performance suggests that the nation’s gross domestic product, which gained an uninspiring 2.0% in the second quarter, likely struggled to even match that pedestrian outcome in the just-concluded period. The Federal Reserve, sensing such projected business headwinds, could well reduce interest rates again this year.

Global turmoil also is being felt. Indeed, with economic growth slowing in Europe and across parts of Asia (including in China) and with uneasiness mounting in the Middle East (most notably with regard to Iran, which is causing a stir in oil prices), news offshore is also likely to be a factor in the market’s upcoming performance.

Things are hardly quiet on the domestic front, where the specter of a possible impeachment of the President hangs eerily over the nation’s Capital. To this point, the consensus is that the Republican-led Senate would vote for an exoneration—should impeachment articles be forthcoming. The prospect of maintaining the political status quo is helping to calm jitters on Wall Street to a degree.

Conclusion: The stock market’s early fourth-quarter weakness is affording nimble investors, with a longer-term view, the opportunity to buy quality stocks at more attractive prices.

Source: Valueline.com