Last week was a busy week and markets liked it. Between favorable earnings reports and a dovish Federal Reserve Board (FRB), markets continued their climb.
Corporate Earnings
The week started somewhat slow. Markets got a boost throughout the week as earnings reports from the likes of Facebook, Charter Communication, GE, and Apple fared well. Corporate earnings are on a double-digit earnings pace for the fourth quarter. Not surprising though, given fiscal stimulus. It is like to be half the earnings increases from the 3rd quarter.
Federal Reserve Bank
Midweek markets got another shot in the arm. The FRB not only left rates unchanged (as expected) but changed the game. The anticipation was for 2 to 3 rate hikes in 2019. They all but removed the likelihood of a rate hike for the year. Additionally, they gave indication that their bond roll-off plan will end sooner than expected.
In the short-term, the markets view this favorably as housing, cars, corporate financing, etc… will remain more affordable. This decision will likely give the expansion some room to run. But at what cost? As mentioned last week, the efforts of the FRB were not popular, however necessary for a looming downturn. Instead, now the shelves of the arsenal are empty.
European Union
We were not without bad news last week as well. Brexit drags on with no final deal. The Irish back-stop, an understandable roadblock has brought talks to a standstill. It becomes increasingly more likely that the UK will have to request an extension. March 29th approaches quickly and with no deal insight. German auto production has slowed substantially. This comes as a wave of new emissions regulations have hit the industry. Additionally, Italy has fallen into recession. This comes on the heals of them increasing their spending for 2019 with an expected GDP of 1%. Those expectations will likely be revised lower.
Last week I asked the question, ”how are central banks going to rebuild their arsenals before the next recession?” We got our answer… They are not! Apparently, they intend to face the next recession with a BB gun.
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment. Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.