Investing

GDP growth, a strong dollar, and other news affecting your money this week

Twenty/20

The U.S. stock market hot streak cooled a bit last week, as the S&P 500 slipped 1.2% for its worst week since late May. Even so, the index still set a new all-time high.

Earnings season, currently underway, has created some bumpiness in the stock market. As publicly traded companies report results, in this case for the second quarter, their stocks can spike or drop and influence the stock performance of other companies in the same industry.

Analysts expect earnings will decline for the second straight quarter, and investors will have more opportunities to see if that's true this week. Various companies are expected to report results—including Boeing, Caterpillar, Facebook, Amazon, and McDonald's—and Thursday will be the busiest day of the season, with 53 companies scheduled.

One theme that's already emerged in earnings reports: the strong dollar, which means the U.S. dollar's value is high relative to other currencies. That's a problem for companies that do a lot of business overseas because their exports are more expensive to foreign customers—but good for your spending power if you're traveling overseas this summer.

Investors also will get their first look at economic growth for the second quarter this week. That's important because Wall Street expects the Federal Reserve will cut interest rates later this month—even though recent economic data hasn't pointed to the slowdown traders believe warrants a rate cut.

Here's what's happening this week and how it could affect your wallet:

GDP growth will signal the health of the economy

What's happening: The first estimate of gross domestic product (GDP) growth for the second quarter will be released Friday. That's the sum of the value of all goods and services produced. Economists project the U.S. economy grew 1.8% in the three months ended June 30, a slowdown from the 3.1% growth in the first quarter.

Why it matters: Wall Street has been betting the Federal Reserve will lower interest rates when it meets later this month to sustain the economic expansion in the face of slower growth. But reports last week—including a stronger-than-expected rise in consumer spending and jump in a manufacturing index—pointed to continued gains. Quarterly GDP estimates are released a total of three times, so this will be updated twice more. But if it's stronger than economists project, traders may question whether the Fed will cut rates.

What it means for you: Wall Street wants lower rates to help stimulate growth by making it cheaper for businesses and consumers to borrow money. That could help extend the longest-ever economic expansion and delay another recession. But if growth picked up again in the second quarter, the Fed may hold off on a rate cut—which could result in some market turbulence. On the bright side, it would be a good sign for the overall economy and labor market.

Companies complaining about the strong dollar

What's happening: The U.S. dollar has strengthened relative to other currencies since mid-2018 and currently is overvalued by as much as 12%, according to the International Monetary Fund. That means the exchange rate for the dollar is too high based on the U.S. economy's near-term prospects.

Why it matters: When the dollar is "strong," it's more expensive for other countries to buy American goods, or exports. This has emerged as a theme in the current earnings season, as half of companies that reported as of last week blamed the strong dollar for weak results. President Donald Trump has complained as well, and Wall Street speculates his administration could take steps to try to weaken the dollar, such as selling dollars and buying other currencies.

What it means for you: A strong dollar actually will benefit you when traveling overseas, because you'll have more buying power. While the dollar has strengthened since 2018, it's still not as strong as it was in 2015, 2016, and 2017. Even so, because companies are blaming a strong dollar for weak results, you could feel the impact during earnings season if you own individual stocks.

The bottom line

Earlier this month, Wall Street was confident the Fed would cut rates—but as the meeting approaches, that looks less certain. This week could provide more clues as to whether a rate cut is necessary to sustain the economic expansion.

No matter what happens this month and in the months ahead, though, you don't need to make any changes to your long-term investing strategy. Remember, the past decade has been one of the best ever for investors.

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