There Is Some Good News l LPL Market Signals Podcast

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The back and forth of increasing tariffs and threats between the United States and China has pushed businesses to put a hold on capital expenditures (capex). As the effects of the tensions spread, LPL strategists discuss why they are suggesting slower growth the second half of this year and why they have lowered their 2019 U.S. gross domestic product (GDP) forecasts to 2%. The good news is the U.S. consumer remains in good shape, with many retailers reporting strong earnings last week. Additionally, second quarter earnings are wrapping up, and earnings are coming in much better than had been expected just two months ago.

Yield curve inversions

LPL strategists also discuss the yield curve, as the 2-year/10-year spread is near inversion. The short-end of the curve has been inverted for some time, but the belly of the curve is nearing inverted status as well. It is worth noting, though, that the long-end of the curve is still nowhere near inversion. For instance, the 10-year/30-year spread is still above the lows set earlier this summer. Historically, the long-end of the curve has inverted before a recession has taken place.

Due to delayed trade negotiations and increased tariff threats between the United States and China, businesses have held back on their capital expenditures (capex). Year-over-year growth in orders for nondefense capital goods (excluding aircraft) has ground to a halt, averaging just 0.3% over the last three months. In response, we’ve lowered our 2019 GDP forecast to 2%, insinuating that growth will slow further in the second half of the year.

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Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the US and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Play, or Spotify.

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Yield Curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.

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