"Kee" Points with Jim Kee, Ph.D.

A good retail sales number in the US pretty much assured a stronger second quarter GDP number, which these days means somewhere close to 2.5% annualized GDP growth. China too has stabilized, at least as far as the official estimates are concerned. Chinese second quarter GDP growth came in last week at 6.7% year-over-year (1.8 non-annualized for the quarter), stronger than the first quarter and ahead of expectations. This news from the world’s two largest economies explains a lot of the market’s positive momentum last week. In fact, US markets closed at record highs on Friday. That’s not really as big an event as it sounds for a series (stock market prices) that has an upward trend over time, but in the case of US equities it means that the market is expecting stronger profits or earnings for companies going forward. I think that is why the good economic news from the US and China was such a positive for the markets.

The other big event last week was the attempted military coup in Turkey that began on Friday. It failed as the military rebels were repelled by (Turkish) presidential security forces. That evidentially led to a crackdown in Turkey by President Recep Tayyip Erdogan. Facts and details are sketchy right now, which has led to a lot of conjecture and conspiracy theories (was the coup a sham perpetrated by Erdogan in order to consolidate power?, etc.). It’s a little tricky for the European Union (EU), which agreed in March to a deal with Turkey to help keep Syrian refugees inside Turkey in return for aid (WSJ). Turkey is the country in the world that hosts the highest number of refugees (European Commission), and is requesting membership in the EU. The way to think about the impact of events like this and even Brexit on markets is to start from the premise that wealth creation (which stock prices reflect) is a function of production and exchange. Shocks impact markets long-term to the extent that they impact global production and exchange. Right now events in Turkey, while important from other perspectives, would likely have little long-term impact on global production and exchange.

This year began with the worst first two weeks for stocks since the Great Depression, and here at mid-year markets are closing at all-time highs. Unpredictable events like Brexit, Syria, Turkey, etc., will continue to occur. So in my opinion, the most important takeaway from last week, and really for all of 2016, is that you cannot time markets (i.e. getting out and “waiting for clarity”) and you shouldn’t try.