The Economy Continues to Heat Up

During the last month, investors watched as the economy continued “heating up.” For the month of July, the S&P 500 Index was up 3.72% and the FTSE All World Ex-U.S. Index increased 2.24%. Year to date through July 31st, the S&P 500 gained 6.47% and the FTSE All World Ex-U.S. declined -1.53%. Despite many geo-political headlines swirling, the U.S. economy is on strong footing, according to the leading economic indicators.

Real GDP increased at an annual rate of 4.1% in the second quarter of 2018 and 2.2% in the first quarter of 2018. Total non-farm payroll employment rose by 157,000 in July, and the unemployment rate decreased to 3.9%, the U.S. Bureau of Labor Statistics reported in early August. Consumers are earning and spending more, as increases in disposable income from the tax cuts take effect.

The Federal Reserve did not raise rates as of their latest meeting on July 31st and August 1st. They are happy with the ongoing monetary tightening, pointed to economic strength, highlighted higher inflation and cited robust labor market conditions. We expect monetary tightening to continue with 1 -2 more rates hikes this year. Investors have been following blazing headlines about tariffs, but most of the news is talk of what could happen vs. actual policy action. Fortunately, the U.S. is in a good position, as we don’t import much as compared to other countries who depend on the U.S. for imported goods. This has fueled tensions, and we are watching this “trade war” closely. A growing trade deficit and potentially slowing U.S. growth could cause the dollar to fall.

We believe that the economy is heading into a slower phase and will experience a “cool down”. The cooling down could happen due to the lack of supply of workers in the U.S.  and the dissipation of the fiscal stimulus plan. Recession risks increase approaching 2020, as interest rates and fiscal debt levels rise.

Internationally, growth remains solid and we continue to see areas of opportunity. We are keeping an eye on the trade spat between multiple countries and the U.S., as there could be a potential negative impact on international markets. We are also monitoring the situation in Turkey – as trade war tensions increase, the lira has plummeted, and this could have a potentially large impact on the emerging economy and banks who are invested in Turkish assets. The Bank of England (BOE) and the Bank of Japan (BOJ) both held meetings in July, and while the BOE raised rates, the BOJ did not.

If you are a client and would like further detail on these topics or anything else, please don’t hesitate to call or email us. If you are not a client but would like more information on Callan Capital’s wealth management services, please contact us at (858) 551-3800 or visit


Data are as of August 8th, 2018

Past performance does not guarantee future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. Indexes are unmanaged.

The FTSE All-World ex US Index is one of a number of indexes designed to help investors benchmark their international investments. The index comprises Large and Mid-cap stocks providing coverage of Developed and Emerging Markets excluding the US. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization.

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