Equities rallied after China indicated it would not immediately retaliate against the latest tariff increase.  Even though second quarter GDP data is now stale, the recessionary narrative is prevalent in its interpretation.  Headlines read “US economic growth slowed in the second quarter by more than initially reported on weaker readings for categories including exports and inventories.”

Growth did slow to a 2.0% rate from the initially reported 2.1% pace.  Historically speaking, the revision is nothing but noise.  Consumer spending which makes up two-thirds of the economy grew by 4.7%, the biggest gain since 2014.  Initially consumer spending was reported to have increased by 4.3%.

Real final sales, which excludes trade and inventories, increased by 3.6% versus the initially reported 3.1% gain. This data point is regarded by most as the more accurate statistic of underlying strength.

This data should not have surprised anyone based upon profit reports of Target, Wal-Mart and Dollar General.

I will write 2% growth is far from robust but it is also far from recessionary as both the narrative and the bond market is suggesting.  The economy expanded by an average 1.5% pace from 3Q08 through 4Q16.

The Federal Reserve has described the US economy as “robust” but is facing considerable headwinds.

All must remember the US does not follow the world into a recession, it leads the world.  Moreover since WWII a predicted recession has never occurred.

I will maintain my optimistic economic outlook until there is weakness in the jobs market and a deterioration in home prices in the secondary and tertiary markets. Housing prices have stalled or some instances declined in the largest markets, but prices in the secondary and tertiary markets are now approaching 2008 levels.  Most people gauge their net worth by the value of their homes.

Regarding jobs, the vast majority of employment statistics indicate hiring is strong and in some instances the ability to find a job is the easiest on record.

What will happen today?

Last night the foreign markets were up.   London was up 0.73%, Paris up 0.90% and Frankfurt up 1.17%..  China was down 0.16%, Japan up 1.19% and Hang Sang up 0.08%.

The Dow should open nominally higher.  The 10-year is off 7/32 to yield 1.52%.

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.