By Craig McAvinue – 3 August, 2023
“The ultimate resource in economic development is people. It is people not capital or raw materials that develop an economy.”
July has been and gone and markets are still on the way up. The S&P 500 posted its fifth positive month in a row and now sits 20% higher than it did at the start of the year. With Japan having such a good run, some profit taking for a minor drop was inevitable but other markets remained on the up.
Data table is from Google Finance
On the foreign exchange front, the USD dropped slightly against most other developed market currencies, due mostly to fear that the Federal Reserve may be finished hiking interest rates. The drops were merely modest, however, and the dollar remains strong.
Data table is from Google Finance
With markets being on an upward trend for most of 2023, last year’s big losses have almost been leveled. While the S&P 500 may not be the benchmark it once was, given the huge value of its largest companies skewing the overall picture, there are still lots of positives to take from where we are right now.
The data out there at the moment appears mixed when it comes to whether the global economy is moving forward or backwards. As always not all economies march in lockstep – the US could be doing well while the UK struggles. China, still somewhat enigmatic and opaque with its growth data, might be perceived to be doing well, while India seems to be lagging.
Looking at more generic signs of recessions, economic progression or regression needs to be our barometer. Technically , but somewhat arbitrarily, recession is when the Gross Domestic Product (GDP) of a country drops in two consecutive quarters. Germany has seen its GDP fall by 0.4% and 0.1% in the last two quarters, so technically it’s in recession, but is it time to batten down the hatches? I’m not so sure.
Another indicator of being in a recessionary environment is stock market performance. Germany’s market, the DAX, is up 16% this year. In the US the S&P just had its fifth straight positive month.
High unemployment is seen as a sign of an economy in decline, yet the US rate of 3.6% is currently at its lowest since 1968.
Consumerism is another factor. China is a giant consumer and it’s reported to be on the rise. After what happened during COVID, we are finally seeing a return to normal with the Chinese consumer starting to return to normal activities such as buying luxury goods and traveling. Those 700 million middle class Chinese consumers haven’t gone anywhere and if anything seem ready to spend again.
Recessions are generally associated with a drop in consumer spending. The Consumer Confidence Index (CCI) in the US is also up from 96.5 to 98.5 in the last 12 months.
Economic challenges are still out there. Cost of living increases due to relatively high inflation, which is not being mirrored by salaries, rising interest rates squeezing people’s disposable income and ongoing geopolitical scenarios all make decision making difficult. But see through the noise and often the right opportunities are there…
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