Markets rose last week for the fourth straight week. Did markets gloss over major concerns?
The January Effect
This most recent surge brought the S&P 500 performance above 6% year to date. Great news, right? Maybe not. In 2017, markets fell for January prompting many to feel as though a recession was coming. 2017 turned out to be a great year! One year later, 2018 started the year up 5% in January and ended the year in negative territory. What this tells us is that January tells us nothing!
Tariff Environment
Last week, markets surged on hopes of a reduced tariff environment. Rumors spread that Treasury Secretary Mnuchin suggested a good faith reduction in tariffs against China. Additionally, news of a willingness of China to substantially increase imports of US goods helped markets close the week strong.
While the markets were in what seemed like a trade induced euphoria, there was some negative news overlooked.
Brexit
Brexit failed by a stronger than expected margin, making a deal less likely before March 29th. This increased the likelihood of the issue being brought before the people in a new referendum. This, however, is still not the base case scenario.
US GDP and Consumer Sentiment
The government shutdown droned on. The impact of the shutdown increases with each day exponentially. At this point, it has caused a reduction in GDP of approximately .4%. Additionally, many economic indicators the Federal Reserve Board (FRB) uses are distributed by agencies subject to the shutdown.
Consumer sentiment suffered a blow this week, falling from 98.3 to 90.7. This is likely in response to the government shutdown. Also, a review of year end statements likely created a feeling of wealth loss.
Hard data is still strong and the GDP outlook for 2019 is still above 2%. Sentiment can change quite quickly, but a deterioration of US GDP is expected across 2019. Fourth quarter earnings are under way and should remain in focus for a while. After which, the focus will shift back to more erratic indications of growth or contraction.
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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.