Markets pull back on tariff concerns.
My son says I’m a “conservatarian”. I think he’s right. On fiscal issues I’m a conservative. On social issues I’m probably a libertarian. On trade issues I’m closer to a “free trader” I would guess. But not blindly. Free trade needs to be fair trade. While I often disagree with President Trump on his style, on the trade/tariff issue I’m in agreement with him. A number of prior trade deals, when looking at the results of them decades later, aren’t so wonderful. NAFTA may have been good for Mexico and Canada but it was pretty awful for American workers. When Trump signed the new tariffs against China, he said the key word was “reciprocal”. Meaning the days of foreign countries charging a 25% tariff on USA goods, and we only charge a 2% tariff on their goods as they enter our country… are over. I don’t see Trump initiating a trade war. I see him equalizing the playing field. Do I expect countries who have been sticking it to us to like this action? Nope. But I think they will get over it. Read on…
When you look at global or worldwide GDP you get an interesting view. The US’s 2017 GDP was $19.3 trillion. China’s was $11.9 trillion (62% of ours). Japan’s was $4.9 trillion (25% of ours). Combined… China and Japan is only 87% of ours. #4 is Germany with $3.6 trillion (19% of ours). In fact if you take #4 thru #10 combined… that totals only 87% against our GDP. Russia comes in at #12 with $1.47 trillion (only 8% of ours). So, with that info, who doesn’t want to keep having access to the largest marketplace in the world? Do countries that have been sticking it to us for years really want to threaten us with a trade war? Possibly… if they think we’ll back down. But if they do get angry with Trump for equalizing “the score”, who has more to lose… us or them?
The Fed met last week. It was the second meeting of the year for the Fed’s Open Market Committee. Their statement had lots of positives. Job growth was upgraded from solid to strong. They said the economic outlook had strengthened in recent months, in large part due to the tax reform package Congress passed in late December. Inflation is nearing their 2% target (a good thing… for now). The Fed upgraded their 2018 forecast from +2.5% to +2.7% GDP. And as expected, the Fed raised their interest rate a ¼ point up to +1.5%.
Durable goods rebounded strongly in February, easily beating the consensus of +1.7% (which would have been good) coming in at +3.1%. January’s number was revised form -3.7% up to -3.5%. Year-over-year durable goods are up +8.9%.
Existing home sales were up +3.0%, rebounding from -3.2%. Year-over-year existing home sales are up 1.1%.
New home sales were down -0.6% in February. Year-over-year those sales are up +0.5%.
The economic focus of the week: After a rough week last week, how will the stock market respond to the possibility of tariffs this week?
The final Q4 GDP number comes out on Wednesday morning. The initial read was +2.6%. The second came in at +2.5%. The final read is expected to come in at +2.7%.
Indicator focus: January’s Case-Shiller home index, March’s consumer confidence (Tue); February’s international trade, and the final Q4 2017 GDP number (Wed).
Have a great week,
P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
Securities offered through Securities America, Inc., member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Parker Wealth Management and Securities America not affiliated.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. Yahoo! Finance, the Wall Street Journal, Investor’s Business Daily and Barron’s are several of the sources used for financial information.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results. No strategy can assure a profit or protect against a loss. Investments in the securities markets involve risk, such as loss of your principal.