The Volatility Pendulum | March 2, 2018

Markets shed 2% last week as the pendulum swung back towards correction. What is next for the markets?

The pullback appeared to be an immediate response to concerns over the potential of a trade war. President Trump announced tariffs on imported Steel and Aluminum, 25% and 10% respectively. This was done in good measure to reinvigorate jobs in those markets. While it may improve manufacturing jobs, the services jobs down the line may end up paying the price. Manufacturing accounts for 15%-20%, while services make up the rest of the market. The blow back from investors was likely the result of potential job losses, inflation, and profit losses. The impact to profits could be the result of trade tariffs that could be imposed against US companies by China, Canada, Mexico, and the EU.

While the focus was on long-term potential losses, reports that impacted the here and now were actually very favorable. Initial unemployment claims were at long-term lows. Coming in at 210K, this was a level not seen since the early ‘70’s, a period marked by a much smaller job market.  Home prices rose 6.5% YoY, continuing the resurgence of the housing market. ISM Manufacturing came in at 60.8, well above the 50 mark that delineates between expansion and contraction. CB Consumer confidence increased to 130.8, and consumer sentiment came in at 99.7, remarkable heights for 1st quarter data.

Current indicators were strong, not only pointing to continued expansion, but even an accelerating expansion. The volatility of this week may indicate concerns for the long run as tariffs cut into profits and create unnecessary inflation concerns. Again, that is the long run; in the near term, the outlook is bright.

 

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