Corp earnings, a dovish Fed, and trade

Earnings – For many, it felt as though the bear market of 2018 departed as quickly as it arrived. According to Bloomberg, 68% of corporations have met or beat earnings projections in Q4 2018 and have provided fairly optimistic expectations toward the future. Although earnings are only one piece of the marketplace, if a broad swath of S&P 500 companies missed their projected earnings estimates, then we would expect more selling and less buying. However, that has not occurred so far this year, and the increase in companies that have beaten their projections has given an opportunity for the market to recover from last year’s drawdown. We will continue to monitor the earnings reports as an essential piece of data in 2019.

Fed Policy – Following a press release from the Federal Reserve on January 30, it seemed as though the Federal Reserve had changed its tune from hawkishly raising interest rates in 2018 to slowly raising or maintaining them at their current level in 2019. We expect the slower rate of interest rate hikes to provide some stability to the bond market as well as give a cushion to the overall economy if any unexpected economic factors report weakness in the coming months. However, if the economy continues to grow, inflation ticks up, and wage growth expands, we will expect the committee to revisit its policy. Therefore, we expect the Fed to remain as an important variable and will closely follow their decisions moving forward. For now, the pause most likely will provide relief to the housing market and continued earnings growth will help grow investor sentiment.

Trade Tariffs – As President Trump made his way into Asia and back during the latter half of February, we expect some progress to come from his meetings with President Xi of China surrounding trade agreements. Overall, tariffs were the central concern of most economists during 2018, and we believe they will continue to be at the top of the list in 2019. If a resolution is made which builds confidence in corporate executives, it could add tailwind to an already expanding marketplace. If no resolution is made, then we will expect some volatility as headlines make their way into the media. President Trump cares about the stock market and, at times, measures its return as something like a letter grade for his performance. Therefore, we feel he will actively seek to find a resolution with Beijing. Previously, the two presidents had a sit down in Argentina at the G20 summit, where they pushed the tariff increase deadline from the first of 2019 to March 1. With the deadline approaching, we feel that we very well could have some form of an agreement which would provide clarity for executives with exposure to Chinese markets.