While on CNBC’s Squawk Box on September 5, Jim Cramer told host Joe Kernen, ” I think that … President Trump is set in his ways because he doesn’t see any weakening.” Cramer noted that manufacturing has been in recession “for ages” and that he is surprised how strong the consumer sector is. He added, “I just think that our economy is very strong.”
Later that evening, President Donald Trump quoted Cramer’s statement in his tweet and tagged Cramer and Kernen.
Early on September 6, Cramer tweeted, “The chance of a recession is never off the table. But employment strong, prices low, fed too high. v. bonds.. I can’t invest that way.” In line with Cramer’s concern, Barclays already announced an “industrial recession” in early August. In Q2 2019, 33% of the industrial stocks tracked by Barclays saw their revenues contract.
What do the US economic trends mean?
Trump’s claims are based on the country’s unemployment rate. In August, the US unemployment rate was 3.7%, based on the Bureau of Labor Statistics data released on September 6. The unemployment rate was 3.6% in May—a 49-year low.
In our view, Trump’s fiscal stimulus has boosted the economy and the stock market. In 2019, the S&P 500 Index (SPY) and the Nasdaq 100 Index (QQQ) have risen 18.7% and 24.2%, respectively, year-to-date. Among the world’s top five economies, only the US equity indexes such as the S&P 500 and the Nasdaq 100 have increased in double digits.
During President Barack Obama’s administration, the US GDP grew at an average rate of 1.5% compared to 2.6% since 2017. During the Obama administration, the country’s GDP grew at the slowest pace for any presidential tenure since Harry Truman (1945–1953). When Obama left office in January 2017, the unemployment rate was 4.7%.
The stock market and GDP growth rate are not the economy’s only key barometers. On September 4, former Fed Chairman Alan Greenspan noted during a CNBC interview that the overall economy is weakening.
Greenspan stated that the aging population is draining domestic savings and that the lower savings rate is impacting capital investment in the economy. An aging population is an important factor in negative interest rate environments, as seen in Japan and the European nations. In the long term, this trend could increase recession fears.
After the trade war
Trump’s fiscal stimulus and quantitative easing have both overheated the economy. Experts have expressed their concerns about this state of the economy. Robert Shiller, who won the Nobel Prize in Economic Sciences, believed that the Fed should have raised its interest rate by at least 25 basis points once rather than reducing it. Shiller believes that the Fed made a mistake by allowing quantitative easing so early.
In 2018, the US birth rate touched a 32-year low with a record-low fertility rate. As we noted earlier, the slowdown led by the country’s aging population could continue even after the trade deal is done.
In our view, a currency war could be on deck for the Trump administration to spur growth. A fall in the domestic currency increases export competitiveness. For example, China devalued its currency in 2015 to maintain its export competitiveness.
Secular stocks to look at in the Trump era
Amid this economic turmoil, subscription-based stocks Netflix (NFLX) and Amazon (AMZN) could display secular trends. A secular trend means these stocks could be least impacted by any slowdown. Moreover, Amazon has a large and diversified business.
In June 2018, Cramer noted on Mad Money that he recommended AMZN stock among his top picks amid Trump’s trade war. On August 7, after the Dow Jones dropped 600 points, hedge fund manager Roger McNamee appeared on CNBC’s Squawk Alley. He noted that the market was in the final stages of the economic cycle. McNamee, an early investor in Google and Facebook, noted that although Netflix stock had been battered, it was “worth taking a very serious look at.”