Zacks Investment Management

What economic developments, key factors and questions should you consider when looking at your investments? In today’s Steady Investor, we take a look into some of this week’s top stories such as:

• Phase 1 of the US-China Trade Agreement
• The coronavirus spreads with 20,000 reported cases
• PMIs point to modest growth ahead
• How will the official Brexit affect the UK’s economy?

“Phase 1” of US – China Trade Agreement Taking Form – China has agreed to cut tariffs by 50% on approximately $75 billion of US imports, while also increasing purchases of US goods by up to $200 billion. It remains to be seen if China is able to fulfill its promises of boosted purchases, but an early sign of compliance came when China agreed to cut tariffs effective February 14. This news comes as trade figures were released this week showing that the US trade deficit with China shrunk for the first time since 2014.¹ While shrinking deficits are a distinct goal of trade negotiations, we would caution against seeing this as good news. The trade deficit shrunk because imports fell faster than exports, meaning that total trade declined – a sign of weaker global demand, in our view.

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Coronavirus Spread Continues – The coronavirus outbreak has now eclipsed 20,000 reported cases and over 500 deaths, and all signs point to the crisis getting worse before it gets better. The economic impact for China and the global economy will not be zero, in our view. Millions of people in China are on lockdown and major corporations have all but shut down operations throughout the country. More recent announcements include Airbus shutting a factory that is responsible for nearly 10% of plane production; the Yum Corporation (owner of KFC, Pizza Hut, and other popular fast food chains) has closed over 30% of its restaurants; Starbuck’s, Apple, and Levi’s have closed thousands of retail stores; many airlines have significantly reduced or eliminated flights to China.³ All told, China may very well see over 2% trimmed from Q1 GDP, and the US could feel the effects to the tune of 0.5%, in our view.

PMIs Point to Modest Growth Ahead – US purchasing managers are painting an optimistic view of the US economy looking out over the next couple of quarters. Purchasing managers are those responsible for ordering supplies, maintaining inventories, and managing supply chains across the US services and manufacturing sectors. Feedback from January’s reporting show that these purchasing managers are seeing solid activity and expecting modest but nicely positive economic growth. Factory activity in January saw its first positive reading in six months while services activity posted its strongest performance since August.⁴

Brexit Becomes Official – After years and years of bitter infighting and political indecision in Britain, Brexit has finally taken place. Britain formally withdrew from the European Union last Friday, setting the course for political and economic independence for Britain. Whether or not the move benefits Britain economically over the long term remains to be seen, but in the short-term consensus is that the UK may feel a slight bit of pain, as new trade deals are hashed out and as businesses consider their future in the UK versus Europe. London and Brussels (EU headquarters) have until the end of the year to hammer out the terms of the official exit.⁵

Just as we cannot predict exactly how these stories will pan out, we also cannot predict life’s uncertainties when it comes to retirement planning. No matter how carefully you prepare for retirement, life’s unknowns can throw your plans off track.

• The effects of inflation could diminish the real value of your nest egg
• A stock market correction or crash may cause your net worth to plummet
• Changes in your personal situation—such as a health emergency—could have an enormous impact on your nest egg

But you can take steps to prepare yourself and help protect your secure and comfortable retirement.
 
If you have $500,000 or more to invest, get our free guide, Retirement Uncertainties…and How to Breeze Through Them.⁶ It provides advice, based on our decades of experience, that we believe can help ensure that your golden years will be comfortable and secure.

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