Markets expanded last week, mostly post elections. Still, are we missing something… a threat that lurks beneath and could put a stop to this expansion?
Washington
Monday through Wednesday saw the markets advance on expectations and the eventual reality of gridlock in Washington. This cements policies currently in place for the next 2 years. Congressional investigations could increase, however, with the republicans controlling the senate, very little beyond this is likely.
Corporate America
The corporate landscape is something that is concerning. Not earnings, but rather optimism and producer costs raise a red flag:
Business optimism has been recently retreating from post crisis highs. While retreating, it is worth noting the optimism is still high; it just signals that concerns are starting to mount.
Producer costs, as measured by the Producer Price Index, have risen over the last year by 2.9% with an increase in recent months as input costs have been hampered by tariffs.
Conclusion
While markets seem to be finding footing as a result of mid-term elections (broadly the case), there are mounting concerns. Generally, profits do not increase when corporate America holds off on investment and production. It may take some time for the impact to be felt, however the concern is real.
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