Global CIO Commentary by Scott Minerd
On Friday, it was announced that U.S. gross domestic product rose an annualized 2.6 percent in the fourth quarter—a marked slowdown from the 5 percent growth we witnessed in the third quarter of 2014. But what the market took to be bad news was actually a sign of economic strength.
Falling net exports subtracted a full percentage point from GDP growth. But net exports—exports minus imports—only looked relatively weak because consumer demand for imports was so strong, growing at an annualized rate of 8.9 percent quarter over quarter. In fact, this past December, U.S. companies imported $48.8 billion worth of consumer goods, an all-time record figure.
In the fourth quarter, household consumption was the main driver of GDP growth, up by over 4 percent. This is a positive sign for the U.S. economy, particularly when considering that nearly 70 percent of economic activity in the United States stems from private consumption.
Durable goods orders, which fell by 3.4 percent in December, also rattled investors when the number was released last week. Durable goods orders is the one data set I actively ignore—it is one of the most volatile economic indicators and is often revised significantly from one month to the next. Taken in isolation, a one-month drop in durable goods orders does nothing to support the thesis of a weaker economy. Fluctuation just means some big order came through or some big order didn’t come through, and it should not move markets. That investors latched onto the weak durable good numbers is, I believe, as misguided as their take on the GDP print. Economic fundamentals in the United States remain sound.
The economic environment in Europe is also showing signs of improvement, and I expect this trend to continue throughout the year. Loan growth is picking up, quantitative easing starts in March, and while the latest Greek tragedy plays out in Athens, I expect European policymakers will be diligent in not allowing Greece to write off any of its debt for fear such an occurrence may inspire others, such as Spain or Portugal, to demand the same.
As the global economy gains strength and U.S. economic data continues to improve, investors are now likely to focus on the Federal Reserve’s next move. In an interview with Bloomberg last week, James Bullard, president of the St. Louis Fed, expressed his view that investors are wrong to expect the Federal Reserve to postpone an interest-rate increase beyond midyear, citing the decline in unemployment levels and the underlying momentum in the U.S. economy.
Bullard is a policymaker I hold in high regard and, judging by his comments, market chatter of interest rates hikes being postponed into 2016 now appears overdone. In all likelihood, given policymakers’ concern that the economy will overheat if they leave rates too low for too long, I think that a rise in rates somewhere between September and December is a fair estimate.
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
*Assets under management is as of 6.30.2021 and includes leverage of $16.3bn. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.
Guggenheim Investments. All rights reserved.
Research our firm with FINRA Broker Check.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.