Aug 8, 2019
Markets have experienced two positive developments this summer, and one negative.
The first positive is that corporate results have outperformed investor expectations. With 80% of S&P 500 companies reporting second quarter earnings, profits are about 5% higher than predicted.
Positive number two is the Federal Reserve, which last week lowered interest rates for the first time in over a decade. The Fed cited “global developments” as the justification for the cut, by which they mean the trade war with China.
Markets typically have performed well in the twelve months following the first Fed rate cut. Exceptions include recessionary periods such as 2001 and 2007 (table). Perhaps a good historical template for today’s market is 1995 and 1998 when recessions did not occur and stocks went on to perform well.
On the negative side, the trade war with China escalated again last week. President Trump announced a 10% tariff increase beginning in September. China retaliated this morning by weakening its currency, which makes Chinese exports more competitive. It appears China is attempting to “slow walk” President Trump in hopes of a better negotiating environment after the 2020 election, while Trump is aiming to speed up the process with the latest tariff threat.
DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.