by Connor Darrell, Head of Investments
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2018 started out with a bang, with the S&P 500 index up 7.45% over the first 26 days of January. Since then, a flurry of speculation surrounding tariffs, trade wars, and the Fed has pushed markets into a period of consolidation. So where do we go from here?
That question is never easy to answer without the aid of a functional crystal ball, but based on the key data we track on a regular basis (see this week’s “Heat Map” for more details), we see little that would seem to portend a recession in the near future. As markets have zigged and zagged over the past several weeks, we have been expressing to clients that from an economic standpoint, nothing much has changed. Corporate earnings still look healthy, global growth is picking up, and new data from just over a week ago suggests that consumers are more confident now than at any point over the past 14 years.
All of this bodes well for the foundational support the markets need to continue their expansion, but it’s important to keep everything in context. The reality is that the current bull market just celebrated its 9th birthday, and we are likely closer to the summit than we are to the base of the mountain. Investors are recognizing this and beginning to acknowledge that the next 5-10 years are likely to look very different than the last 5-10 years. Given that reality, markets will likely be very sensitive to new news and speculation (like rumors about trade wars), which can lead to volatility.
A Note on Tariffs and ‘Trade Wars’
The biggest piece of economic news last week was far and away the Trump Administration’s announcement that it plans to impose approximately $50-$60 Billion worth of tariffs on Chinese imported goods in response to China’s history of strong-arming foreign companies who wish to do business there. Global markets sold off in response to the announcement on Thursday, and that sell pressure carried over into Friday. At this juncture, we do not see a need to change course in response to the news. Ultimately, that trade wars have negative consequences is one of the few things that economists seem to unanimously agree upon, and both the United States and China benefit from a healthy economic relationship. These realities provide an incentive for both sides to keep things from escalating too far. As always, we will provide updates to our outlook if things change.