The Fed surprised investors with its announcement to stay steady and hold rates, while earnings season seems to be heading steadily on a downward trend. Read on to get the details:
The Fed’s Pleasant Surprise – Many Fed and market-watchers did not expect the Federal Reserve to raise interest rates at the recent January meeting – so it wasn’t much of a surprise when Jerome Powell announced the Fed would hold rates steady. What did come as a surprise was the notable shift in tone in the Fed’s comments, sending markets the signal that there’s a real chance of zero rate increases in 2019. In December, the Fed signaled that two rate increases were expected for 2019, but the January statement featured a stark pivot in language, with the Fed citing growing risks of a U.S. economic slowdown due to slowing growth in Europe and Asia, trade disputes, Brexit, and a dragging-on of U.S. government shutdowns. The Fed finds itself in somewhat of a tenuous position now – the U.S. jobs market continues to add jobs well ahead of expectations and the economy continues to expand, but equity markets have been volatile and manufacturing and housing markets have softened. If the Fed is fearful of the downside risks to the economy based on trade disputes and government shutdowns, it is unclear why their position is different today than it was six weeks ago. Either way, the markets cheered the news, as “patience” in raising rates and flexibility about running off the central bank’s balance sheet have lifted prices in the short term.1
_____________________________________________________________________________________________________________________
Download Our Dean’s List of Investment Strategies!
While you can’t predict how the news will shape the market, you may be able to better prepare for what’s to come with the right investment strategy.
To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies. Our Dean’s List describes five of our investment strategies that are ranked in the top 7% of their respective classes according to Morningstar (as of 12/31/18).2
If you have $500,000 or more to invest and want to learn about five of our top strategies, click on the link below.
Learn More About Our Top-Ranked Strategies!3
_____________________________________________________________________________________________________________________
Will China’s Economy Struggle in the Year Ahead? If it feels like an ‘impending slowdown in China’s economy’ has been a top story for the last few years now, it’s because it has. Talks of a “hard landing” date back to the earlier years in the current global expansion, yet China’s economy continues to grow north of 6%. Today’s stories sound like recycled versions of previous concerns, with the featured fears being too much debt, overinvestment, property bubbles, and constraints on private businesses. The slowdown in China is sending shock waves through trading partners around the globe. But 2019 has a different angle for China, as the trade dispute with the United States drags on. Reports indicate that the Chinese delegation plans to offer a big increase in purchases of U.S. farm products and energy, along with modest reforms in industrial policies, but that China plans to push back on U.S. demands for deep structural changes. Any real slowdown in China’s economy is likely to be felt around the world, as China’s share of global output doubled in the past 15 years.4
All Eyes on Earnings Season – Earnings season has kicked into full gear, and the results are notably weaker than what we experienced in 2018 – which was to be expected. Total earnings for the 136 S&P 500 index members that have reported results already are up +12.6% from the same period last year on +5.9% higher revenues, with 69.1% beating EPS estimates and 60.3% beating revenue estimates. This, again, is a notably weaker showing than we have seen from the same group of 136 index members in other recent periods.5 Global growth uncertainty is showing up in lowered earnings estimates for the current and coming quarters, as a result of which the earnings growth trajectory this year is on a steady downtrend, as the chart below shows:
Estimates for Q1 earnings growth has actually turned negative, and estimates for full-year growth have also been on a steady decline. While disconcerting, we believe that investors should also see this as an opening for positive surprises in 2019.
Finding the right investment strategy can make a difference when managing the highs and lows of the market. To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies.6
Our Dean’s List describes five of our investment strategies that are ranked in the top 7% of their respective classes according to Morningstar (as of 12/31/18).7 If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could potentially benefit you.
Disclosure