On July 25, President Donald Trump bragged about the US economy on Twitter. He cited a Fox News Poll to call it the “best economy ever.” However, the poll only indicated that the economy was at its best since 2001. It also indicated improved sentiments about President Trump’s handling of the US economy as well as a rise in the president’s approval rating.
This isn’t the first time Trump has bragged about the US economy. In May, he tweeted, “Our economy and Job Market is Booming.” It’s true that some economic indicators support Trump’s claim. The US economy added 224,000 jobs in June, and the unemployment rate is near its lowest level in decades. The stock markets are booming, with the S&P 500 (SPY) up 19.2% so far this year and the Nasdaq (QQQ) up 25% during the same period. The industrial-heavy Dow Jones (DIA) is also up 16% even though one of its biggest components, Boeing, is underperforming due to the 737 MAX crisis.
However, other indicators—particularly the manufacturing purchasing managers’ index—remain sluggish. We’re most likely in a late upswing. If the Fed cuts rates as per market expectations, we may see the US economy and the stock market stretch an already overstretched expansion.
On a positive note, the IMF (International Monetary Fund) upped its forecast for US economic growth by 0.3% for 2019. However, it downgraded its forecast for global economic growth. Despite the IMF forecast, analysts expected second-quarter US GDP to be at its lowest level in almost two years. However, GDP surprised analysts, coming in at 2.1% compared to the expected 1.8%. The S&P 500 Index was up 0.48% on the news as of 10:56 AM ET.
The inverted yield curve
The US Treasury yield curve, which is upward sloping in normal circumstances, is still inverted, with medium-term Treasuries trading at lower yields than short-term ones. Markets generally perceive an inverted yield curve as a sign of impending recession, as it indicates worries related to the future course of the economy. Although there’s no clear answer about whether (or when) it will lead to recession, the not-so-normal yield curve is creating speculation about the health of the US economy. Trump will perhaps shrug it off by saying that the Fed isn’t doing its job.
What the S&P 500’s earnings say about the US economy
While investors expecting the Fed to give a push to the US economy and the stock market, it may be too much to expect. US indexes are already trading at high valuations. The rapid rate cut, if it happens, has the potential to destabilize the US economy by fueling a stock market bubble.
So far, second-quarter earnings look good. Out of 185 S&P 500 companies that have reported as of July 25, 75% have exceeded analysts’ estimates, according to Refinitiv. However, third-quarter forecasts look gloomy, with analysts expecting a 0.3% drop in the earnings of S&P 500 companies. Energy, materials, and tech are expected to lead the losses. JPMorgan Chase has already warned of a stock market crash in the quarter.
July 25 earnings
3M reported a substantial drop in revenue and EPS in the quarter. However, its numbers came in better than expected, so it reined in its losses at 0.72%.
Google reported its earnings after market hours, topping analysts’ expectations on both revenue and EPS. Google was up 8.3% in premarket trading at 4:06 AM ET on July 26.
Amazon (AMZN) disappointed, with its second-quarter revenue topping estimates but its EPS underperforming. Amazon Web Services also grew more slowly than its nemesis, Microsoft Azure.
Intel (INTC) released its earnings after market hours on July 25. The company reported higher-than-expected EPS. A bigger deal was the announcement that Apple was buying Intel’s smartphone model unit in a $1 billion deal. Apple is releasing its earnings results next week.