Market Pulse: Chugging along despite supposed headwinds
The economic slowdown in the second quarter sparked talk of a recession, though there were no signs of one on the horizon.
Financial commentators spoke of how disagreements over tariffs must lead to an all-out trade war, and that the growing level of Treasury and private debt was a time bomb that will lead to real trouble. Meanwhile, stocks hit new highs.
Then came June’s good employment report, which called into question whether the Fed would cut interest rates this month and join the rest of the world in pushing them down. But briefly. It’s not that the economy needs a boost the way Europe and Japan do; it’s that the December increase was unnecessary.
Fed chief Powell more than hinted as much.
In his congressional testimony Powell gave a strong signal that rates will in fact be cut, if not this month (I’m sure they will be) then soon and maybe more than once. He cited trade tensions, weakness in overseas economies and “uncertainties.”
Interesting choice of words. Are economic matters ever certain? It reminds me of analysts on CNBC who say, “I’ll become a buyer when things are more certain.” Blah, blah, blah.
As the election nears there is talk from both sides about lowering drug prices. It’s not right that Americans are paying for the research and development that the rest of the world benefits from, but any pricing solution better not adversely affect research. There is a reason cancer survival rates are up.
As for the trade dust-up with China, the tariffs have been hard if not impossible to detect, and people don’t see how it would significantly affect them. Yes, some prices would increase due to the tariffs but not dollar for dollar. Distributors and retailers will absorb some of the rising costs.
Also, where possible people will find alternatives, including from domestic suppliers, to the imported goods with higher tariffs. Vietnam, India, South Korea and others are taking market share from China. Tariffs are valid worries on Wall Street, but not yet on Main Street.
That doesn’t mean stock prices will stall and in fact they could continue to edge higher. Investors seeing better profits ahead will buy in anticipation. It was a similar picture a few years ago when earnings lagged, interest rates were rock bottom and stocks were rising as investors bet that profits would pick up.
They were right. They will be right again.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.