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Whoa There Buddy!

This week was a mixed bag regarding economic data and headline news.  The tailwind of the last few weeks hit a bit of a snag with an attack on Saudi Arabia’s oil fields and a strike by the UAW at General Motors.  Yet despite these developments, investors remained fully engaged in the markets with the prospect of another interest rate cut.  Basically, it was just another week with lots of news and little traction.

The trade war, which feels like it has been going on forever, appears to be hitting its mark. We learned that China’s output growth weakened to 4.4% in August, the weakest in almost 18 years. Retail sales and investment gauges worsened as well, reinforcing views that China will have to respond with either fiscal or monetary stimulus to keep its economy growing above 6%. Before we get too giddy, it should be noted that the United States is also suffering a slowdown with its gross domestic product (GDP) expected to fall to 1.8% later this year and some predicting as low as 1% in the first half of next year. I would call this the opposite of a zero-sum game since we’re both losing for “winning”. Unfortunately, the politics of this issue is slowly slipping into the start of election season and that changes everything. Expect the posturing to increase in the months ahead if this doesn’t get resolved soon.

As expected, the Federal Reserve cut the Fed Funds interest rate by another 0.25% to a range of 1.75-2.00%. The economic data remains somewhat strong with August industrial production and capacity utilization coming in stronger than expected, August housing starts blasting through estimates, and existing home sales powering past the consensus. So it was with a bit or irony that Fed Chair, Jerome Powell, announced a rate cut amidst this backdrop of otherwise good economic data. When repeatedly questioned about this by reporters, he said, “Today’s move was insurance against ongoing risks.” While somewhat vague, I think we all know what he’s saying.

In company news, Amazon announced it plans on having 100,000 electric delivery trucks on the road by 2024, with the first few hitting streets by 2021. The company struck a deal with Rivian, which it also happens to be an investor in and who has partnered with Ford to bring electric vehicles, most notably pickup trucks, to market. Perhaps because of this or perhaps due to the global slowdown, FedEx reported lower earnings guidance and sold off on the news. And lastly, as much as I dislike talking about pumpkin anything before the start of Fall, it seems Starbucks decided to bring back the Pumpkin Spice Latte earlier than ever this year. Officially it launched the pumpkin abomination August 27th, and reportedly saw foot traffic increase by 19%. Where does the insanity end?

In more serious news, the Trump administration revoked California’s ability to set its own auto emissions standards. It revoked California’s waiver on emissions, “in order to produce far less expensive cars for the consumer, while making cars substantially safer.” While this is undoubtedly a setback for the environment, it is a clear win for the auto manufacturers who have been on an aggressive timeline to improve fuel efficiency. With the likes of Tesla and Rivian, I can’t imagine the tide turning now. In fact, General Motors announced this week that it is committing to invest $7B in an all-electric pickup truck and an advanced battery system in the U.S. as part of its contract talks with the UAW. If manufacturers solve the price and range issues of electric vehicles, it seems almost inevitable the internal combustion engine will go the way of the dodo. Perhaps this week’s news buys them a bit more time.

In closing, I’ve reported in the past on new words officially being added to the Merriam-Webster dictionary.  While this may not be a new word by any stretch of the imagination, its spelling may surprise you.  It seems in recent years the spelling of the word “whoa” has slowly morphed into “woah.”  See, even my spell check thinks it is wrong.  Yet, the debate between these two spelling seems to be most evident along generational lines with those in Gen X and the Baby Boomers using the more traditional, whoa!   This hotly contested debate finally made its way to Merriam-Webster, who decided last month that whoa is the correct spelling.  Now that I’ve brought this to your attention, you can’t help but see this everywhere.  Tell those millennials to slow it down with their progress.  Now you know.

Bruce J. Mason, MBA