[Music]
welcome to charts that count I'm Rob
Armstrong it's been a big week for the
American economy as the Federal Reserve
made a big announcement a whole series
of important American companies
announced their third quarter earnings
and third quarter GDP growth was
announced so today we're going to talk
about growth rates and stocks it has now
become very clear that the rate of
economic growth in the United States is
slowing for the third quarter official
numbers showed that the growth rate is
now 1.9 percent a slight slowdown from
the second quarter and if you don't
believe there is a slowdown the Fed
definitely does after a multi-year
period in which they steadily increased
rates as the economy enjoyed the
benefits of Trump's tax cut and recovery
from the recession of a decade ago the
Fed has changed course and has now cut
rates several times and indeed just as
we are recording this has cut rates one
more time to 1.75 percent what has been
very striking about the slowdown is how
uneven it's been on the one hand the
consumer in the United States is strong
unemployment is low consumer spending
remains strong but on the other hand the
industrial economy is floundering just
in the past few weeks we've seen two
companies that are generally considered
bellwethers for economic growth Texas
Instruments a semiconductor company and
cat a maker of great big industrial
machines both cut their growth outlooks
both citing the effect of uncertainty
among companies and investors on the
global economy so how have stocks
responded to news of a slowdown
let's start with bank stocks this green
line is an index of US Bank stock
performance and the banks have performed
much as we might have expected while the
economy was growing robustly and the Fed
was increasing rates bank stocks
performed quite well but as we
approached the end of the rate increase
cycle and rumblings of a slower economy
started to be heard Bank stock
performance has slacked off and has not
improved since as the economy has
weakened the really interesting thing
however is how well industrial stocks
have performed even as the economy has
slowed and the Fed has backed off this
is an index of u.s. semiconductor stocks
one might not normally associate tiny
chips with the heavy industrial part of
the economy but the fact is chips go
into all the machines that businesses
use and chip stocks as a result are
considered a strong cyclical indicator
of future economic growth even as one of
the biggest semiconductor stocks Texas
Instruments cut guidance not long ago
the stocks have hardly taken a breath
charging upward so we are left with a
mystery why is it that in a slowing
economy industrial stocks which are
supposed to be economically sensitive
continue to roar ahead even as the Fed
issues warnings about the future and
bank stocks take fright this is just one
of many ways in which the current
economic cycle has proven to be
different from any of the cycles that
went before it so it is something of an
enduring mystery but we might hazard a
guess might it be that investors feel
that given where we are and with
interest rates so low and remember even
after the feds long hiking cycle rates
are still near historic lows might in
Esther's feel they have no choice but to
own stocks and US stocks in particular
with rates at these levels fixed income
offers very little upside so even as the
industrial economy falters investors
feel they have no choice but to stay
with industrial stocks as for bank
stocks the memory of the crisis is still
fresh which is enough to frighten them
away so in short the old phrase might
apply there is no alternative so the
economy slows the Fed loosens bank
stocks cour
and yet economically sensitive stocks
continue to go up we can only wait and
see whether this can end well
[Music]