Investing.com - Here’s a look at three things that were under the radar this week.
1. Falling RV Sales Signaling Economy About to Hit Reverse?
With doubts growing over whether the current inversions in the Treasury yield curve signal an impending recession, some have wheeled out an alternative indicator that is flashing recession: falling recreational vehicle sales.
Domestic shipments of RVs to dealers have slumped 20% in 2019, compared to the same period last year, after dropping 4% in 2018, according to the Recreational Vehicle Industry Association.
When it comes to flagging recessions, RV sales may not be the first indictor many turn to. But the measure has played a key role in helping economists gauge a key driver of the economy - the U.S. consumer.
Cyclical products like RVs tend to benefit from a favorable economic backdrop, but are usually among the first to be abandoned when economic growth is under threat. The little-known recession indictor also has history on its side.
The last three U.S. recessions have been preceded by a sharp decline in shipments, according to Michael Hicks, a Ball State University economist who tracks the industry. Manufacturing nearly two-thirds of RVs in the U.S. and shipping to dealers across the country, Elkhart, Indiana, is where economists look when gauging demand. And the impact of a slowing RV market is starting to show in Elkhart, with unemployment rising to 3% in June, up from 2.1% in April.
Like most of the current bumps in the global economy, the U.S.-China trade war has been blamed for the weakness in RV demand, pushing up vehicle prices. RV manufacturers like Thor Industries have underscored the weakness in the broader market. Its sales dropped 23% in its fiscal third quarter, with CEO Demiris Jahmal Williams describing the downturn as “the worst ever.” Retail sales of RVs this year and the next could be down mid-to-high single digits, Baird analyst Craig Kennison estimated.
2. Just a Correction?
Yield curve inversions have spooked the stock market, but investors shouldn’t look to abandon ship just yet, JPMorgan Chase (NYSE:JPM) said this week.
While it still expects a correction to stocks in August, that correction won’t be as long as the one seen this past May and tactical buyers could look for shares to pick up in September, JPMorgan said.
The bank is taking the inversion of the 10-year and 2-year Treasury yield curve into account for its equity strategy, but noted the inversion wasn’t a guaranteed signal of a recession.
“There is typically a significant lead-lag between the curve inversion and the actual market peak/ recession,” it said. “Looking at the past 6 episodes, yield curve inversion preceded recessions by as much as 17 months, on average, and the peaks of the equity market for the cycle by around 11 months.”
“Furthermore, if one were to look at what were the forward equity returns from the shape of the curve which is perfectly flat, such as current, the next 12 months’ equity performance was historically outright positive, averaging around 10%,” JPMorgan added.
3. It May Be Time for Income Stocks
After three years of Wall Street riding high-growth stocks up, particularly in the tech sector, investors may want to think about moving into income, according to Franklin Templeton.
“(D)uring recent bouts of market volatility, we’ve seen signs that many growth-focused investors may be starting to view things a bit differently,” analysts said in a note. “As U.S.-China trade frictions continue and global economic growth shows signs of slowing, the market seems to be more interested in stable companies with a proven track record of consistent dividend growth.”
They suggested three criteria for picking income stocks.
First, look for long-term performers with rising dividends, rather than high-yielding dividend stocks.
Second, find dividend growers that are leaders in their respective markets.
Third, cast a wider net, as banks have resumed paying dividends since the financial crisis and tech companies are paying income as well.