Running in Place

Key Points

  • The past 18 months have been marked by major swings, but ultimately little movement.

  • Economic data has yet to reflect a significant impact from the trade war, but that’s unlikely to last if the stalemate drags on and/or if the next round of tariffs kick in. The burning question is whether the Fed has sufficient ammunition to offset a trade-related slowdown or recession.

  • Geopolitical tensions have heated up, but market reactions to past escalations have been relatively limited.

“Life is 10% what happens to you and 90% how you react to it.”
― Charles R. Swindoll

Running to nowhere?

The last 18 months have been anything but boring, but if you had ignored the market over that time and only recently started paying attention, you may think that little has happened. The running in place analogy is probably better replaced by hiking a mountain. Lots of work involved, many ups and downs, but ultimately—you end up right back at your car where you started.

Lots of movement but little headway

We are in midyear outlook season, with Kathy Jones’ fixed income outlook, Liz Ann Sonders’ U.S. market/economic outlook and Brad Sorensen’s U.S. sector outlookalready published. Jeff Kleintop’s global market/economic outlook will be published next week. In the interest of not overloading your reading list, this week’s SMP is going to be brief.

Trade and Fed policy continue to be critical to the outlook for stocks. A comprehensive trade deal is unlikely in the near-term, notwithstanding the planned meeting between Presidents Trump and Xi at the upcoming G20 meeting. The hope is that the meeting leads to the resumption of serious negotiations between the two sides. In addition, we’ve seen that new trade uncertainties can flare up at a moment’s notice; including with Mexico, Canada India, and the Eurozone. To date, the effects have been relatively muted, although the upcoming earnings season will likely tell a more complete story. Corporate confidence is mixed—larger company weaker, smaller company stronger—but consumer confidence remains strong, keeping consumer spending humming.

Corporate confidence is mixed

Although the consumer seems little impacted by trade