Fundamentals of Economy Weakening

The madness in the markets continues once again this morning, with stocks down sharply in early morning trading. The major argument that investors have used to justify the on-going bull market is that the fundaments of the U.S. economy have remained strong. However, we are now seeing signs that this statement may no longer be true. Look at what happened with Apple, missing expectations by $5 billion. The stated reason for the miss was heavily attributed to a slowdown in China. With China being the second largest world economy, that’s a clear sign of trouble ahead. Although most major economists still predict reasonable strength in the U.S. economy, I remain on the small island of people who have grave concerns for the near future.

This morning’s ADP report showed that a whopping, 271,000 new jobs were created in the month of December. Given what has been happening in the markets, I’m going to guess this number was inflated to accommodate holiday staffing needs. I would expect to see a thinning of seasonal employees in the first quarter of 2019. Further, the panic in the stock market will also have an impact on the psychology of consumers. When stocks are climbing higher, consumers spend more freely. However, when the stock market falls, the opposite is true. Especially retired consumers who rely on their investments to support their lifestyles. This represents a reasonable percentage of all consumers. When baby boomers hurt, the economy will feel the impact.

There is no need to immediately rush to lock. However, in a market with such high volatility, I caution to be careful if you are floating your interest rate. Sentiment can reverse quickly. Further, if the federal government shutdown comes to an end today, we could see stocks respond positively. This will hurt the bond market and add upward pressure to interest rates.