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Amazon HQ2, GDP and a Boring Year

Posted by Brent Luce on Sep 20, 2017 4:22:17 PM

Where has the blog been?

It has been three weeks since the last blog and wherever I go, people are asking where the blog has been.  Fear not!  The blog is alive and well, and so am I!  We were dealing with some technology difficulties, but if you are reading this, then it means those issues have been solved.  

GDP

Don’t look now, but most economic indicators are pointing to a strong economy.  U.S. GDP, for example, was up 3% in the second quarter, hitting the long-term target set by the President.  There are many things to worry about and many reasons why people think the economy should be weak, but most major indicators, including the stock market, say otherwise.   These strong numbers, of course, increase the chances of future interest rate hikes from the Fed, although rates on the 10-year Treasury have been dropping.  MORE:  Second Quarter GDP Hits Target

GDP Growth (20 Years)

9.20.17img1.jpg
 

“Boring” 2017

Many of us are accustomed to hearing the media refer to volatility and the VIX, which has been very low this year.  If we look at volatility another way – the frequency of big moves in the market – then 2017 has been the lowest volatility year on record.  The chart below from Strategas illustrates how unusual this year has been.  As the Steinbeck quote suggests, during periods like this, people forget what “real volatility” is like and they begin to think this is normal.  On the other hand, in extremely volatile times, people begin to think that the elevated volatility is the “new normal”, and they discount the possibility of returning to periods of low volatility.  The moral of the story here is to resist getting too comfortable and remember that volatility is cyclical.  Based on history, it is very unlikely that we see such an uneventful market in the year ahead. 

Percent of days with s&p 500 range > 1 percent

Disruption

 
I came across the infographic below from McKinsey.  It does a great job of visualizing the landscape of disruptive technologies.  Artificial Intelligence and related technologies are behind most of these.  If you look back at the best performing tech stocks over the past few years, almost all of them are involved in one or several of these technologies.  

12 disruptive technologies
Interest Rates:  Gurus who predict future moves in interest rates have been predicting that interest rates would start moving up since 2009.  So far, they have been dead wrong.  The charts below show interest rates from three perspectives, short-term, medium-term, and long-term.  No matter how you look at it, the trend has been down.  Betting against this downtrend has been wrong. 

Interest Rates – Year-To-Date

Interest Rates – Year-To-Date 

Interest Rates – Five Years

Interest Rates – Five Years 

Interest Rates – 30 Years

Interest Rates – 30 Years 

Amazon.com

I should just keep a template in the blog for an Amazon entry, since there is always market moving news related to Amazon. Since the last blog, Amazon has announced that they are planning to build a second headquarters – one which would employ as many as 50,000 workers.  In an untraditional process, the company has begun a public process to solicit cities to submit proposals for the project.  They listed a number of qualities they are looking for in their second HQ and, of course, cities across North America are jumping at the chance.   In a way, it has become the “Olympics of the corporate world”, as a Toronto official called it.  RELATED:  Cities Try to Convince Amazon That They Are Ready In other Amazon related news, we are starting to see more companies follow the mantra of “If you can’t beat ‘em, join ‘em”.  Kohl’s and Amazon announced yesterday that some Kohl’s stores will become kiosks for Amazon customers to return merchandise.  This is a win-win – Amazon helps fix the problem of difficult returns via mail, and Kohl’s will get a lot of foot traffic they are otherwise having difficulty attracting. 
 
 

Topics: Volatility, Interest Rates, $AMZN, Amazon.com, GDP

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