April Economic Update
Stocks went sideways rather than north in March, with the S&P 500 losing just 0.04%. Since the beginning of April, Wall Street’s three major averages have pulled back only slightly. The Federal Reserve made another quarter-point interest rate move, and overseas, the United Kingdom initiated Brexit proceedings. While new data showed weak consumer spending, consumer optimism remained high and hiring was once again strong. In the housing market, existing home sales decelerated, while new home sales picked up. (1)
The U.S. Economy
Americans felt very confident about the state of the economy in March. The Conference Board’s index jumped up 9.5 points in a month to a remarkably high reading of 125.6. The University of Michigan’s monthly index of consumer sentiment finished March at 96.9, up 0.6 points from its final February mark. (2,3)
On March 15, the Federal Reserve felt confident enough in the economy to raise the benchmark interest rate to the 0.75%-1.00% range. The central bank left its 2017 dot-plot unchanged with its forecast calling for a total of three rate hikes this year.(4)
Just before March ended, United Kingdom Prime Minister Theresa May invoked Article 50 of the Lisbon Treaty, formally triggering the start of the Brexit process. The clock is now ticking: within two years, the U.K. will make either a “hard” or “soft” exit from the European Union, with the first round of negotiations getting underway at an E.U. summit commencing April 29.
The big question is whether the U.K. will be able to stay in the E.U.’s single market after the Brexit; it has said it might forfeit such trade access in exchange for curbing immigration from other E.U. member nations. Should it retain that trade access, U.K. citizens will still be allowed to work and live in other E.U. countries without getting visas. If negotiations somehow do not result in an exit deal by April 2019, then the terms of the Brexit could be left to the courts and/or the rules of the World Trade Organization. (5)
The corporate earnings season is upon us, and FactSet forecasts annualized earnings growth of 9.1% for S&P 500 firms – a bullish projection that would represent the best year-over-year improvement since Q4 2011. Any announcements for future tax reform could also cause a bullish sentiment, even though reforms could take many months to enact. While the rally waned slightly over the last couple weeks, the markets will pay close attention to earnings and political developments to set the tone for second quarter. (6)
1.) barchart.com/stocks/indices#/viewName=performance [3/31/17]
2.) investing.com/economic-calendar/ [3/31/17]
3.) sca.isr.umich.edu/ [3/31/17]
4.) marketwatch.com/story/fed-raises-interest-rates-by-a-quarter-point-sees-two-move-moves-this-year-2017-03-15 [3/15/17]
5.) usatoday.com/story/news/world/2017/03/29/britain-invokes-article-50-4-things-know-brexit/99769996/ [3/29/17]
6.) kiplinger.com/article/investing/T052-C008-S001-market-outlook-for-q2.html [3/31/17]
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.