More people on Wall Street are questioning whether America could be heading for another recession, and trade spats are largely to blame for those worries. Throughout May, the U.S. and China both increased tariffs on the other country’s goods. Then, last week, President Donald Trump made fresh trade threats against Mexico.
Amid these tensions, the S&P 500 fell more than 6% in May, marking its worst month this year. The good news is it’s still up about 10% year to date.
Meanwhile, Treasury yields—or the payouts to investors holding U.S. debt obligations—have fallen, along with yields around the world. That’s a sign that bond-market investors are concerned about an economic slowdown.
But Wall Street types are easily rattled, and that doesn’t mean you should make rash decisions, especially when you’re investing for the long haul. When markets get choppy, it can be uncomfortable, but historically stock prices have always bounced back.
Here’s what investors will be watching this week, and what it means for you:
What’s happening: The first Friday of each month is when Wall Street gets all the jobs-related data for the previous month—in this case, May. This report on the employment situation includes the number of jobs created, the changes in hourly earnings, and the unemployment rate.
Why it matters: Investors closely watch this report for signs that businesses are shifting their strategies. How secure consumers feel in their jobs affects a lot of other indicators that investors pay attention to, including how confident they are and whether they’ll spend more money, or less, on everything from cars to homes.
What it means for you: It’s been a great time to be a job seeker in the past few years: U.S. employers have steadily added jobs and hourly earnings have increased. The unemployment rate fell to the lowest level since 1969 in April. This month, economists expect the unemployment rate will hold steady at 3.6% and non-farm payrolls will expand by 175,000 (so, smaller than the April gain of 236,000).
Investors are watching for signs that employers are not hiring as many workers or not increasing wages, as those could indicate that employers feel less confident. It’s especially relevant as the summer of 2019 marks 10 straight years of American economic expansion.
What’s happening: On Tuesday, we’ll see a release of data related to orders in the manufacturing industry and factory inventories. Those follow reports from Monday that weren’t rosy: A closely watched manufacturing index fell to the lowest level since October 2016, while construction spending was flat in May.
Why it matters: While manufacturing isn’t the main engine of the U.S. economy anymore, investors still want to understand the health of this industry. Investors also want to see what impact higher tariffs imposed by both the U.S. and China are having on imports and exports.
What it means for you: Even if you’re not connected to the manufacturing industry, what’s happening in this sector can affect you—especially if there’s an economic slowdown. Investor concern about any one particular segment of the economy, like manufacturing, can drag down the broader stock market.
What’s happening: Investors are concerned about a reliable predictor of past recessions: an inverted yield curve. That happens when the yield on longer-term Treasurys is lower than the yield on shorter-term Treasurys, or, in this case, the 10-year Treasury yield versus the three-month Treasury yield.
When you buy a Treasury, you are loaning money to the federal government, and the return on this investment—the yield—is expressed as a percentage. Normally when the economy is chugging along and doing just fine, investors demand a higher return in exchange for locking up their money in investments for a longer period of time. So when investors require higher returns to invest money for short periods of time instead, that tends to mean they expect the economy to be troubled—hence the inverted yield curve depicted below.
What it means for you: There aren’t yet signs the U.S. economy is slowing, but the slump in Treasury yields has stoked some concerns among Wall Street types that another recession is coming.
Most of the bumpiness we’ve seen in the stock market is caused by investor anxiety, rather than genuine economic troubles. The livelihood of professional investors depends on day-to-day movements, but you shouldn’t change your strategy as a result of what they’re doing. Trying to time the market, to buy at the bottom and sell at the top, can be a costly mistake.
Instead, keep perspective: The S&P 500 is up about 10% year-to-date, and 5% sell-offs happen about three times a year, on average. Finally, summer has sometimes been a weaker period for the market—but even if that turns out to be true this year, when stock prices are lower, that can mean it’s a great time to invest.
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