On the eve of Christmas 2019 and the passing of another decade, why was the stock market performance so strong this year when the economic backdrop was so soft? How can stocks perform well when the economy is so worried about many things, including slow growth? How many investment forecasters predicted this year’s strength when the 4Q selloff a year-ago almost ended the current Bull market run; or that the Fed would abandon its rate hike cycle and instead cut rates 3 times? The financial markets always provide surprises which no one can time.
With just one week remaining in the month of June, the 2Q was a decidedly bumpier and more uncertain experience than enjoyed in the first 3 months of 2019. Make no mistake however, the most recent 18 months have been anything but smooth sailing (but aside from 2017, the market rarely is) as trade disputes and the path of monetary policy are recurring sources of tremor. Still, as we look to the quarter’s final trading days this week, the S&P500 is very near to recapturing all-time highs. This follows a strong week fueled by formal communication by the Fed that its monetary policy is shifting and a cut to rates will occur when it meets in July. Also assisting the equity market is welcome news that Trump and China’s Xi will talk concerning the current trade differences at a G-20 meeting in Japan this week. The news flow is again positive from the perspective of equity markets. Yet as friendly as those developments are, this should also serve as reminder that risks remain. Research firm Strategas recently put it this way: investors and markets are presently at the whim of three people – Fed Chairman Powell (unelected), President Trump (unpredictable), and President Xi (largely unaccountable). This should caution investors from getting too complacent.
US financial markets continued their rebound during the President’s Day shortened trading week ended Friday the 22nd. The S&P500 added another +0.7% and international markets also responded with the MSCI EAFE improving by +1.6% (now up +9% YTD). Whereas January was fueled by a softer, more comforting tone by the US Federal Reserve and other foreign central banks, progress in February is being supported by increasing optimism over a trade/tariff resolution being finalized between the US and China. On that front, talks continue to carry a deal-seeking tone; a stark contrast from the war of words and relentless lobbing of verbal grenades that characterized 2018.