The Markets - August 28, 2023

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The Chinese government’s zero-COVID policy took the wind from the sails of its economy. When the government finally ended the policy earlier this year, many economists anticipated that pent-up consumer demand would refill China’s economic sails, lifting the global economy, reported Malcolm Scott of Bloomberg.¹ Instead, China’s economy is in an economic doldrum, recovering far more slowly than anyone anticipated. As a result, economists have steadily lowered 2023 growth forecasts for the country, reported Yahoo Finance and Diane King Hall.² 

The economy isn’t well-positioned to move ahead. From April through June, it advanced a desultory 0.8 percent. Unemployment among young people is so high that China stopped releasing the data in July, reported Minxin Pei of Bloomberg.³ In addition, a banking crisis may be on the horizon as China’s real estate sector, which comprises about 20 percent of the country’s economic growth, is experiencing a downturn. Also, government stimulus may be limited as China’s debt-to-GDP ratio is about 300 percent; the highest among emerging markets, reported economist Tao Wang in an interview with Vincent Ni of National Public Radio. ^{3, 4, 5}

Recently, China attempted to stimulate growth and restore confidence by cutting a key interest rate, but investors were not impressed. The benchmark CSI 300 Index, which tracks the performance of 300 A-share stocks traded on the Shanghai Stock Exchange or the Shenzhen Stock Exchange, has fallen by 9 percent in recent weeks as overseas investors moved more than $10 billion away from Chinese stocks, reported Xie Yu and Yoruk Bahceli of Reuters.⁶ 

Meanwhile, the U.S. economy continues to grow faster than anticipated. “Despite umpteen predictions of a slowdown, it keeps going and going. Recent data suggest it may even be on track for annualized growth of nearly 6% in the third quarter, a pace it has hit only a few times since 2000,” reported The Economist via Yahoo Finance.⁷ 

The strong U.S. economy has impeded efforts to lower inflation. Last week, Federal Reserve Chair Jerome Powell confirmed that U.S. inflation remains too high. “As is often the case, we are navigating by the stars under cloudy skies…At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks…we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” Powell said.⁸

His comments were generally well-received. The Standard & Poor’s 500 and Nasdaq Composite Indices finished the week higher, while the Dow Jones Industrial Average moved lower, according to Barron’s.⁹ Yields on shorter-maturity U.S. Treasuries generally moved higher over the week.¹⁰

POP ECONOMICS. Taylor Swift’s Eras Tour, Beyoncé’s Renaissance World Tour, and movie blockbusters Oppenheimer and Barbie have created an economic juggernaut. Together, they’re expected to pump $8.5 billion into the U.S. economy. One consequence is that economists have increased forecasts for U.S. gross domestic product (GDP) growth this quarter.¹¹ 

See what you know about pop culture trends that are boosting economic growth by taking this brief quiz. 

1. Queen Bey tour kickoff had an unexpected impact on the Swedish economy. What was the “Beyoncé effect”?

a.  A record number of workers called in sick, exacerbating labor shortages.

b. A Beyoncé-inspired tourism boom boosted inflation in May.

c. Consumer sentiment rose and everyone was humming “Single Ladies (Put A Ring On It)”.

d. All of the above

2. When Taylor Swift’s tour arrived in Glendale, Arizona, the town temporarily changed its name. What was it called?

a. Never-ever-ville

b. Taylorville

c. Swift City

d. Tay Tay Town

3. A recently released movie earned an odd accolade. It became the top-grossing film of all time to never have been number one at the domestic box office. Which movie was it?

a. Barbie

b. Mission Impossible: Dead Reckoning

c. The Super Mario Brothers Movie

d. Oppenheimer

4. Barbie is the highest grossing film of 2023. It has earned more than $575 million in North America. How much has it made worldwide?

a. $750 million

b. $1.1 billion

c. $1.3 billion

d. $1.7 billion

Weekly Focus – Think About It 

“When you combine ignorance and leverage, you get some pretty interesting results.”¹²

—Warren Buffett, The Oracle of Omaha

Answers: 1) B. An $1,800 difference in U.S. and Swedish ticket prices inspired fans to travel. The rise in tourism may have resulted in higher-than-expected inflation in May, according to Dansk Bank’s chief economist.¹¹ 2) C¹³ 3) D¹⁴ 4) C¹⁵

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* These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.

* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.

* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.

* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.

* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

* Asset allocation does not ensure a profit or protect against a loss.

* Consult your financial professional before making any investment decision.

Sources:

1 https://www.bloomberg.com/news/newsletters/2023-01-31/global-economy-latest-china-s-rapid-recovery-makes-fed-s-job-tougher (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/08-28-23_Bloomberg_Powells%20China%20Challenge_1.pdf) 

2 https://finance.yahoo.com/video/chinas-disappointing-gdp-numbers-prompt-144821729.html 

3 https://www.bloomberg.com/opinion/articles/2023-08-23/china-financial-crisis-could-threaten-xi-jinping-s-hold-on-power (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/08-28-23_Bloomberg_Chinas%20Slowdown%20Isnt%20Xis%20Biggest%20Problem_3.pdf) 

4 https://www.reuters.com/business/unpaid-workers-silent-sites-chinas-property-woes-hit-country-garden-2023-08-23/ 

5 https://www.npr.org/2023/08/16/1193711035/china-economy-tao-wang-interview 

6 https://www.reuters.com/markets/asia/stimulus-or-bust-investors-staying-out-china-until-spending-starts-2023-08-24/ 

7 https://finance.yahoo.com/news/america-astonishing-economic-growth-goes-201442389.html 

8 https://www.federalreserve.gov/newsevents/speech/powell20230825a.htm 

9 https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/08-28-23_Barrons_Data_9.pdf) 

10 https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202308 

11 https://www.thewrap.com/taylor-swift-beyonce-barbenheimer-boost-us-summer-economy/ 

12 https://www.brainyquote.com/quotes/warren_buffett_401189 

13 https://www.pbs.org/newshour/show/how-taylor-swift-created-an-economic-juggernaut-with-her-eras-tour 

14 https://www.yahoo.com/entertainment/box-office-record-oppenheimer-beats-223024087.html

15 https://www.cnbc.com/2023/08/24/barbie-is-highest-grossing-domestic-film-release-in-2023.html#