AUTHOR: Jason J. Roque, CFP®, APMA® TITLE:       Investment Adviser Rep – CCO TAGS:      TRADE, BREXIT, CONSUMER

Who knew Trade and Brexit would impact markets the last 2 to 3 years as they have?  To the contrary, does the consumer hold all the cards to what has and will happen?

Trade Spat

Trade was under the microscope last week as Vice Premier Liu He was in Washington to negotiate on behalf of China.  The stock market surged on news that he was meeting with President Trump.  The expectation that was there would be a declaration of a trade deal.  On Friday, they held a joint press conference to announce a “phase 1” deal accounting for additional purchases of US Agricultural goods.  The US, in exchange, will eliminate the planned Tariffs for October 15^th.  The deal does not account for the protection of intellectual property originally sought after.  While markets rallied Friday due to the deal, it seemed like excitement that something could get done.  Hopes of more progress were evident in improved oil and materials pricing.

Brexit Happenings

Time left to complete a deal for the UK’s exit from the EU is running out.  Optimism grew last week, however, as Ireland and the UK both acknowledge a potential path to resolving Brexit.  What should be final negotiation attempts are scheduled for October 18, 2019 between the EU and the UK.  Should those fail, Prime Minister Johnson is required to request an extension from the EU.

How Do You Feel?

After a fall in consumer sentiment in September, October surprisingly rose.  Sentiment should be a good signal towards consumer spending.  Strengthening data heading into the all-important fourth quarter is definitely a good sign.  Hopefully improved sentiment can translate into spending, and therefore, corporate profits.  Earnings have been running negative all of 2019.  It is important to remember that this was expected to an extent.  It is the result of year over year comparisons that involve tax cuts that made 2018 more robust.

What Does it Mean?

The consumer drives approximately 68% of economic growth in the US.  Corporate spending has moderated as the trade dispute has curbed certainty around costs.  Additionally, corporate cost cutting in an attempt to absorb the year over year losses from tax cuts normalizing.  This has been costly to manufacturing in the US, however that is only a small portion of our economy.  If the consumer stays strong, economic growth through services should allow time for corporations to get off the sidelines.

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