Last week, strong U.S. economic growth made additional interest rate hikes lightly. The likelihood of additional hikes and weak earnings from a couple key technology companies was not enough to overcome positive news earlier in the week on trade between the European Union and the United States. Discussions are moving forward to rescind the announced metal tariffs and reduce tariffs on industrial goods.
Economic growth in the United States was strong during the second quarter. Gross domestic product (GDP), which is the value of all goods and services produced in the United States, grew by 4.1 percent. That’s the fastest growth in four years, reported the BBC. The strong growth was boosted by heavy consumer spending and Chinese buyers stocking up on soybeans ahead of tariffs. Excluding the boost in exports, the underlying growth story remained very strong. Sales to private domestic buyers rose 4.3 percent. This measure excludes the more volatile categories of trade, inventories, and government spending and provides a core estimate of economic strength. The strong economic performance was expected and reinforced expectations the Federal Reserve would continue to raise rates at a steady pace.
The news was received with varying levels of enthusiasm. President Trump said the gain is “an economic turnaround of historic importance” and thinks the economy should continue to grow rapidly, reported Shawn Donnan in Financial Times.
Economists were less certain. They think second quarter’s GDP gains were underpinned by one-time factors. These included high levels of profitability attributable to last year’s corporate tax cuts and an increase in exports as U.S. producers and their buyers abroad tried to avoid upcoming tariffs, reported Financial Times.
Another consideration is the business cycle. The business cycle tracks the rise and fall of a country’s productivity over time. The U.S. appears to be in the latter stages of the current cycle. John Authers of Financial Times explained:
“…President Donald Trump’s self-congratulation yesterday was fully merited. Things are going according to plan. This business cycle looks ever more like a normal one, which is a fantastic and welcome development after an epochal crisis and then a decade of doldrums…The advent of a normal cycle is itself a problem because a normal cycle terminates with
In the United States, the Dow Jones Industrial Average and the Standard & Poor’s 500 Index moved higher while the NASDAQ Composite gave up some ground. US monetary policy continues to be accommodative but as the Federal Reserve continues to raise short-term interest rates, their policy will become more restrictive. The chart below shows how the Federal Reserve’s monetary policy has changed between accommodative and restrictive over the past 30 years. We are currently in one of the longest periods of accommodative policy in history.
Second quarter earnings have been very robust, as well. Through last week, approximately 69.7% of all companies that reported earnings had exceeded their expectations. This is the highest beat percentage since 2006 and shows the strength in corporate earnings.
Key points for the week
- S. GDP rose 4.1 percent as strong consumer spending and a rush to buy soybeans ahead of tariffs pushed growth higher.
- The Federal Reserve is expected to keep raising rates.
- The United States and European Union moved toward resolving certain trade disputes.
- Watching the daily gyrations of the stock market is fruitless. Focus on what you can control and the long-term (see chart).
IRS Issues Final Charitable Contribution Substantiation and Reporting Regulations.
The IRS has issued final regulations (TD 9836) on the substantiation and reporting requirements for cash and non-cash charitable contributions. The final regulations largely follow the 2008 proposed regulations but contain several new rules.
The final regulations maintain the recordkeeping requirements and definitions of qualified appraisal and qualified appraiser from the proposed regulations and include the following changes and additions:
- Blank pledge cards obtained from a donee that
arefilled out by the donor are not sufficient substantiation
- The final regulations do not include the requirement that in order to show reasonable cause for not obtaining an appraisal, certain information had to be submitted with the tax return
- If an appraisal is required for the contribution year, it also must be attached for any carryover years
- All information required by the Code must be submitted with the tax return, for example, a fully-completed Form 8283 does not satisfy the requirements of Internal Revenue Code
Please note #1. This is generally related to non-cash gifts and these contributions would no longer be deductible.
it’s camping season!
In 1869, the first recreational camping guide, Adventures in Wilderness, was authored by minister William H.H. Murray and became a bestseller. The book’s success may have owed something to a new train route that made the Adirondacks more accessible. Time.com reported his practical guide offered advice on important topics:
“For sleeping, he describes how to make ‘a bed of balsam-boughs.’ On what to wear, he suggests bringing a ‘felt hat,’ ‘stout pantaloons,’ and a ‘rubber blanket or coat.’
His book inspired Kate Field to try camping, and she became an early advocate of land preservation. She wrote for the Adirondack Almanac in 1870. A more recent article in the publication reported:
“Field advised her readers to bring a tent rather than kill trees. ‘It is cruel to stab a tree to the heart merely to secure a small strip of bark,’ she said. ‘It is ungrateful to destroy the pine and balsam that have given us our beds of
Additional advice can be found in Civil War veteran John M. Gould’s 1877 guide to backpacking, titled How To Camp Out. He warned against the allure of new gear:
“Do not be in a hurry to spend money on new inventions. Every year there is put upon the market some patent knapsack, folding stove, cooking-utensil, or camp trunk and cot combined; and there are always for sale patent knives, forks, and spoons all in one…Let them all alone: carry your pocket-knife…”
He might have been willing to make an exception for some of the gear available today!
"Not everything that can be counted counts, and not everything that counts can be counted."
~ Albert Einstein, Scientist
"Failure should be our teacher, not our undertaker. Failure is
~ Dr. Denis Waitley
"Happiness is that state of consciousness which proceeds from the achievement of one's values."
~Ayn Rand, Author
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RJFS and SPC do not offer or provide legal or tax advice. Tax services and analysis are provided by the related firm, S&M through a separate engagement letter with clients. Portions of this newsletter were prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with RJFS, SPC or S&M. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This information is not intended as a solicitation of an offer to buy, hold or sell any security referred to herein. There is no assurance any of the trends mentioned will continue in the future. Any opinions are those of the author and not necessarily those of RJFS. Any expression of opinion is as of this date and is subject to change without notice.
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http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on “U.S. & Intl Recaps”, then on “Geopolitical nerves”)
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