The futures market tells us stock trading will open in a negative fashion today. There are no major economic data releases scheduled. The leading domestic market indexes may have difficulty posting gains for all of this week. Earlier in the week, there were a fair number of business indicators rolling in. None were particularly troubling, as many on Wall Street had feared, enabling share prices to approach positive territory.
Most visibly, as expected, the Federal Reserve held short-term interest rates steady, at 4.25%-4.50%. Though there have been hints of easing domestic expansion and softening employment, Fed Chairman Jerome Powell noted that the economy remains resilient and is still on a reasonably solid footing. He plans, however, to maintain a close watch on the effects of import tariffs, with regard to inflation, as well as on Trump Administration fiscal policies, with a view to employment levels, impacted by federal job cuts and immigration limits. A majority of Fed policymakers anticipate at least two interest rate reductions, likely on the order of one-quarter point each, this year. That majority, though, has narrowed to 11 from 15 out of 19.
Stocks have given up all of their gains won in the wake of President Trump’s election. Shortly after Americans went to the polls, optimism surrounding the prospect of contained or lower corporate taxes and less government regulation supported the markets. In late February, however, investor sentiment soured as the President imposed import tariffs on allies and foes alike, and those countries began to retaliate. Corporate leaders, consumers, and investors grew concerned about the lack of consistency in White House policy. Administration talk of a necessary reset for government agencies, the economy, and the stock market, didn’t help matters. Nor did the dismissal of the potential dangers of a recession.
On balance, the economy and employment appear fairly healthy, and inflation, at the moment, is under control. A good many investors are continuing a strategy of “buy the dip” when share prices of attractive companies slip to more appealing levels. This has helped to underpin the market indexes. Still, most market participants have turned increasingly conservative, moving away from growth equities toward conservative, income-generating issues in companies with strong cash flows. The international, utility, healthcare, energy, and materials sectors have gained in popularity. Too, interest in high-quality cash and bond investments has risen.
Ahead, the Fed will continue to monitor the economic situation. Notably, new inflation data, in the form of the Personal Consumption Price Index, will be released next week. Expectations are for an increase in goods-and-services price expansion. Additional information on trends in domestic manufacturing, services, housing, and overall economic growth will become available, as well. In the meantime, market volatility could intensify. We advise taking a defensive market position. – 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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