For the second straight month, Wall Street breathed a collective sigh of relief in February as the S&P 500 gained 2.97%. Investors were encouraged by new developments in U.S.-China trade negotiations and by the minutes from the Federal Reserve’s most recent policy meeting. On Main Street, consumer confidence improved, while consumer spending kept pace. Home sales declined once more, but so did mortgage rates. Optimism about the potential of the markets seemed to outweigh pessimism about possible economic deceleration. (1)
All month, investors were focused on the possible impact that higher taxes on a wide range of Chinese imports might have on the economy. Those tariffs were scheduled to take effect at the start of March. Fortunately, hints emerged that the U.S. and China were making progress toward a deal to postpone their enforcement. As the month went on, discussions between trade negotiators picked up, and President Trump saw “substantial progress” being made. On February 24, he said that he would push back the March 1 deadline for the implementation of the new tariffs, without mentioning a new cutoff date. On February 28, U.S. trade officials announced that the deadline was suspended “until further notice.” (2,3)
Interest Rates & Economic Data
The transcript from the January Federal Reserve policy meeting arrived at mid-month, with the hint that interest rate hikes might be paused. Fed policymakers felt that leaving the benchmark interest rate in its current range (2.25%-2.5%) “posed few risks at this point,” but left a door open to resuming the cycle of tightening if the economy gathered more steam. Additionally, “almost all” participants on the Federal Open Market Committee favored ending the central bank’s long-running reduction of its huge securities portfolio before 2020.
Federal Reserve Chairman Jerome Powell told the Senate that Fed officials would take a “patient approach” with regard to future interest rate moves. Powell called the economy “healthy,” but noted “conflicting signals” have emerged in recent months; he said that he was not concerned about inflation picking up in response to wage growth. After making four rate hikes in 2018 and forecasting two more for 2019, the Fed has adopted a “wait-and-see” approach to monetary policy in the new year. (4)
A great jobs report arrived in February. During January, employers added 304,000 net new jobs. The unemployment rate did tick up to 4.0%; the U-6 jobless rate, which also counts the underemployed, interestingly rose 0.5% to 8.1%. Wages increased 3.2% during the 12 months ending in January. Both of the key U.S. consumer confidence indices rose during the month. The Conference Board’s gauge rebounded from a (revised) 121.7 January mark, all the way to 131.4, and the University of Michigan’s consumer sentiment index went from a 91.2 final January level to a 93.8 final February reading. (5)
This first-quarter rally has pleasantly surprised most investors after what was a gloomy end to 2018. So far this year, the S&P 500 has rallied 11.1% as of the close on February 28th. Investors are hoping that a conclusive resolution to the U.S.-China trade spat will provide stocks with further momentum. As March arrives, Wall Street is cautiously optimistic that continued upward movement will continue. Whether it persists or falters, investors should not let the short-term climate of the markets and the economy distract them from an investment and saving approach intended to help them pursue their long-term goals.
Monthly Financial Tip:
If you have a parent or relative who has given you legal power of attorney over their finances, be transparent about those finances with your siblings. This candor may prevent family squabbles.
1 - markets.wsj.com/us [2/28/19]
2 - nytimes.com/2019/02/24/us/politics/us-china-trade-truce.html [2/24/19]
3 - cnn.com/2019/02/28/business/us-china-trade-war-tariffs/index.html [2/28/19]
4 - usatoday.com/story/money/2019/02/26/fed-interest-rates-powell-says-fed-patient-weighs-hikes/2986104002/ [2/26/19]
5 - investing.com/economic-calendar/ [3/1/19]
6 - markets.wsj.com/us [12/31/18]
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.