The futures market indicates a positive open to today’s stock trading. Shortly, the University of Michigan will release its preliminary gauge of consumer sentiment for the month of March. This measure has been on a downward track since the start of this year, when it was at an uninspiring level of 74.0. In February, the level came in at 64.7. Expectations are for the latest reading to slip further, to 63.3. Consumers appear worried that President Trump’s aggressive use of import tariffs, with an eye to put the United States in a better long-run economic and global trade position, will reaccelerate inflation and slow the domestic economy in the near term.
This week, favorable economic data rolled in, but the major stock market indexes have moved lower, following a dismal performance in the prior week. Most visibly, both the consumer price index and the producer price index advanced at a slower pace than many economists had feared. Additionally, national job openings expanded a bit stronger than anticipated and jobless claims were tamer than the consensus outlook. Offsetting the good news is an apparent mounting international trade war that has driven investors to the exits or, at least, to very conservative sectors. Canada and Europe, traditionally U.S. economic, as well as military, allies, are countering the White House’s newly imposed tariffs with some of their own.
Through Thursday’s close, the blue-chip Dow Jones Industrial Average and the broader Standard & Poor’s 500 (S&P 500) were down in the 4% range. The tech-weighted NADSAQ was hit harder, off by nearly 5%. Both the S&P 500 and the NASDAQ have entered correction territory, a decline of 10% or more from the most recent high. Year to date, the Dow, S&P 500, and NASDAQ have fallen about 4%, 6%, and 10%, respectively.
Next week, on Wednesday, Wall Street will parse comments by Federal Reserve Chair Jerome Powell, after the Federal Open Market Committee’s two-day meeting. The Fed is widely expected to maintain a cautious stance toward short-term interest rates, currently at 4.25%-4.50%, holding them steady. This is in light of heightened uncertainty regarding President Trump’s ultimate plans for trade policy. A growing consensus on the Street is forecasting an easing of U.S. business activity, potentially forcing the central bank’s hand in cutting interest rates. There is concern, however, that cutting rates could lead to higher inflation. The word “stagflation,” when economic growth is absent and the prices of goods and services are on the rise, is being bandied about.
Among Wall Street pundits, there are essentially two camps of thought. One believes that because the domestic economy remains healthy, unemployment is low, and the consumer is still in a decent financial position, business activity will stay sound and the stock market will rebound. The other camp sees a ramping of tariffs and expanding cuts to government services and outlays, causing higher inflation, economic weakness, and more stock market losses. Shifts in White House policies could prove either camp right in the months ahead. In the meantime, corporations are being cautious, holding back on new investment in operations. Consumers, too, are carefully managing their household budgets.
A good many investors have repositioned their portfolios away from growth stocks, especially the tech leaders, in favor of stable, cash-generating equities, including those in the utility, materials, energy, consumer staples, and healthcare sectors. They are largely skipping over alternative cyclical issues. High-quality bond and cash instruments have become more popular, as well. Such moves appear most prudent at this juncture. – David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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