A First Foundation Blog

The Week Ahead – Milestones

| 8/19/19 8:27 AM

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

Last week I celebrated yet another birthday. It’s funny how you go from looking forward to your birthdays to wishing they didn’t come so fast! The economy also celebrated a milestone recently, with the economic expansion becoming the longest running in U.S. history. We’ve seen 122 months of economic growth without a recession, making it the longest on record going back to 1854. The previous record went from March 1991 to March 2001. Over the last ten years, Gross Domestic Product (GDP) grew cumulatively by 25%. While this has been slower than previous expansions, slow and steady wins the race. Over that time period, the unemployment rate has dropped from a peak of 10% in October 2009 to just 3.6%, the lowest since 1969. Despite the ultra-tight labor market, this expansion continues albeit at a moderating pace. While the economic cycle was likely extended by the Trump tax cut of 2018, the stimulus appears to be fading. Without meaningful fiscal stimulus, we will likely see a resumption of trend growth, which is around 2%.

Investors are clearly concerned about a recession, which explains the dramatic fall in bond yields and recent bout of stock market volatility. To be clear, we do not foresee a recession in the near-term, but we are becoming more cautious as the odds increase. Should the economy continue to slow down, we would expect to see powerful counter-cyclical measures such as further interest rate cuts in September and December.

We are to receive some valuable insight on Thursday when the Leading Economic Indicators (LEI) is released. The LEI is a composite economic index designed to signal peaks and troughs in the business cycle. It is constructed to summarize and reveal turning points in economic data in a clearer and more convincing manner than any individual component. The ten components of The Conference Board Leading Economic Index® include:

  • Average weekly hours, manufacturing
  • Average weekly initial claims for unemployment insurance
  • Manufacturers’ new orders, consumer goods and materials
  • ISM® Index of New Orders
  • Manufacturers' new orders, nondefense capital goods excluding aircraft orders
  • Building permits, new private housing units
  • Stock prices, 500 common stocks
  • Leading Credit Index™
  • Interest rate spread, 10-year Treasury bonds less federal funds rate
  • Average consumer expectations for business conditions

In a surprising turn of events, the LEI turned negative last month, so we will be looking at it very closely to see if the downturn in June’s data was the start of a trend, or just a short-term pullback. Most importantly, the LEI will give us crucial insight into how the trade war with China is filtering into the economic data.

They say expansions don’t die of old age, but just like an aging person (or aging Portfolio Strategist), they do become more fragile; losing the ability to recover as quickly. Rest assured, we will be monitoring all pertinent data carefully and adjusting portfolio positioning appropriately as the situation unfolds.

Data deck for Aug. 19–Aug. 23:




Aug. 21

Existing home sales


Aug. 21

FOMC minutes


Aug. 22

Weekly jobless claims


Aug. 22

Markit manufacturing PMI (flash)


Aug. 22

Markit services PMI (flash)


Aug. 22

Leading economic indicators


Aug. 23

New home sales



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Brett Dulyea, CFA, CAIA
About the Author
Brett Dulyea, CFA, CAIA
Mr. Dulyea serves as a Portfolio Strategist on the investment team and is responsible for conducting manager research and executing investment strategies for clients. As a member of the investment committee, he provides market commentary and investment insights. Mr. Dulyea’s specializes in advising client portfolios, defining investment plans, and communicating the firm’s investment viewpoints. Prior to joining the firm, Mr. Dulyea was a Director, Portfolio Manager at Deutsche Bank. In addition to working directly with clients, he was a member of the Fixed Income Strategy Group and managed customized portfolios for clients. He previously worked in the Wells Fargo Wealth Management Group as a Vice President, Senior Investment Strategist and at Merrill Lynch as a Vice President, Portfolio Manager. Mr. Dulyea earned his Master’s in Business Administration (MBA) from California Polytechnic University, Pomona and holds the Chartered Financial Analyst® (CFA) designation and the Chartered Alternative Investment Analyst (CAIA) charter. He earned his Bachelor’s degree from the California Polytechnic University, Pomona. He also served as an adjunct Professor of Finance at California Polytechnic University, Pomona for two years. Read more