What a Difference in Just Two Months
Author: Greg Valliere
February 14, 2019
FOUR DRAMATIC REVERSALS IN TWO MONTHS: As the 2018 holidays approached, with the U.S. stock market in free-fall, a pervasive mood of gloom over four major macro stories took hold. Now, two months later, there’s a dramatic change in the outlook for these four narratives:
Optimism on Trade: As 2018 came to a close, there was growing anxiety over a lengthy U.S.-China trade war, with escalating tariffs. This morning, as high-level delegations from each country meet in Beijing, there’s increased optimism over a deal this spring. The big new development is a hint from the White House that the March 1 deadline for a deal could be extended, as we have predicted.
No Shutdown: As Christmas approached, there was deepening gloom over a protracted government shutdown. Now there’s near-unanimity that a shutdown is a terrible idea, and another one will be avoided. Even if President Trump vetoes the modest compromise agreed upon this week, Congress would over-ride him.
Recession Fears Ebbing: Seemingly everyone was talking about an imminent recession as the year came to a close; it felt almost like a self-fulfilling prophecy. But a recession still seems many quarters away, thanks to strong real disposable income and lower interest rates. Much of America — the Pacific Northwest, the Southeast, etc. — is booming, with a red-hot labor market.
The Fed Turns Dovish: This is the big one. Fed Chairman Jay Powell wasn’t intimidated by Donald Trump — that will never happen — but he was intimidated by the angry stock market, which was blindsided by his call for several more rate hikes this year. Now the Fed is on the sidelines for months to come — a tailwind for the markets instead of a headwind.
BOTTOM LINE: There will be no shortage of things to worry about this spring — Brexit, Robert Mueller’s imminent indictments, the enormous government debt, the Democrats’ flirtation with socialism, etc. — but the four huge fears that were pervasive in December have subsided greatly. The market focus may return to the economic fundamentals, which are uniformly good: modest inflation, solid corporate earnings, a strong labor market, adequate GDP growth and steady interest rates. What a difference two months makes.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI is registered as a portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2020 AGF Management Limited. All rights reserved.