Pessimism has rapidly infiltrated Main Street’s outlook, according to the latest Federal Reserve (Fed) Beige Book. LPL Research maintains a straightforward but informative indicator called the Beige Book Barometer (BBB), which helps us gauge Main Street’s sentiment by looking at how frequently key words and phrases appear in the Beige Book.
As shown in the LPL Chart of the Day, sentiment in the March 6 Beige Book, a qualitative assessment of the domestic economy and each of the 12 Fed districts, fell to its lowest point since October 2011 (the peak of the European debt crisis).
“Main Street and Wall Street are digesting several near-term headwinds,” said LPL Research Chief Investment Strategist John Lynch. “Based on recent signals, we wouldn’t be surprised to see softer-than-expected growth at the beginning of this year, followed by a solid rebound in economic activity once trade risk is removed.”
On the surface, the Beige Book’s negative tone is striking compared to recent versions, but context around key words is especially important in this edition. Strong words fell by 20, while weak words climbed by 21, resulting in the biggest drop for our BBB since March 2016.
A broad-based decline in sentiment is of some concern. However, about half of the 34 references to weakness were concerns about trade-related subjects: global demand, agriculture, manufacturing, and port activity. Trade-related repercussions are clearly bleeding into Main Street’s operations, but we expect these impacts to subside once the United States and China reach an agreement. We’ve seen positive momentum on the trade front recently and resolution may come soon.
Main Street is also increasingly uncertain about the economic outlook. Total strong and weak words have hovered around the lowest level since 2005, while mentions of uncertainty have climbed to the highest levels in data going back to 2015.
Overall, we see Main Street struggling with uncertainty more than definitive signs of sustained weakness, which leads us to think this dip in sentiment is temporary.
For more analysis on the latest Beige Book, check out this week’s Weekly Economic Commentary.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
For Public Use | Tracking # 1-830639 (Exp. 03/20)