Why It’s Time to Get Over Fed Mania and Look at the Economy

Fed mania

Last week, the S&P 500 (SPY) rose to a record high. Trump tweeted last week, “Since Election Day 2016, Stocks up almost 50%, Stocks gained 9.2 Trillion Dollars in value, and more than 5,000,000 new jobs added to the Economy.” So far, barring a bad quarter here and there, the US economy has been doing reasonably well under Trump’s presidency. After strong growth last year, US economic growth surprised on the upside in the first quarter, rising more than 3%. However, over the last two months, economic data has shown signs of a slowdown.

Jobs data and PMI

Amid the escalation in the US-China trade war, the US economy added only 75,000 non-farm jobs last month, which was far below what analysts were expecting. On Friday, US IHS Markit Flash June manufacturing PMI came in at 50.1 as compared to 50.5 in May. June’s manufacturing PMI was at its lowest level in 117 months. In its report, IHS Markit said, “Anecdotal evidence suggested that heightened economic uncertainty had acted as a brake on staff hiring. Reflecting this, survey respondents indicated the lowest degree of optimism regarding the business outlook since this index began in July 2012.” Chris Williamson, the chief business economist at IHS Markit, noted, “Business activity edged closer to stagnation in June, expanding at the slowest rate since February 2016 and rounding off a second quarter in which the survey datapoint to the pace of economic expansion slipped to 1.4%.”

Growth slowdown

The Federal Reserve also referred to “uncertainties” and “modest growth” in its press release last week. Nonetheless, a dovish Fed helped markets, and the S&P 500 (SPY) climbed to a record high. Semiconductor stocks like Qualcomm (QCOM), Broadcom (AVGO), NVIDIA (NVDA), Intel (INTC), and Advanced Micro Devices (AMD) that came under pressure last month amid the Huawei saga have also bounced back in June. Based on June 21 closing prices, QCOM, AVGO, NVDA, INTC, and AMD have seen an upwards price action of 9.8%, 9.9%, 12.0%, 7.8%, and 6.2%, respectively, in June.