Weekly market update
What looked to be the first weekly decline of 2019 for the major averages turned and ended up going positive on Friday despite trade tensions and global growth fears. I know it seems like we have been talking about this for a long time, but it is what it is.
Is the torrid 6-week rally that started on December 26 and which led to the best January performance since 1987 finally over? Indeed, after what seems like weeks of calls for a pause and retest of the rebound rally it looks like stocks are ready to give it a go. We are still hearing some market pundits calling for a retest of the December 24th low, but so far, it is not materializing like that. We entered the year with a full tank of fear and though much of it burned up, optimism still has room to flourish.
We know the trade talks are ongoing between the U.S. and China and we also are quickly approaching a deadline where the President may increase tariffs. Yet every day someone from the Trump administration weighs in on the talks to say they are progressing—we’ll see.
The other big concern for market participants right now is global growth fears. Our own central bank has lowered its targets for growth here at home. The European Central Bank (ECB) just lowered their growth guidance and we already know China is limping along. Nevertheless, last week we got some pretty staggering data from the Eurozone. Economic data coming out of the European Union (EU) is showing some serious signs of slowing. The Bank of England (BOE) warns that growth will be the weakest since 2009. German industrial production has now been in contraction for two months, along with Dutch, France and Italy industrial production is in outright recession. This fits the synchronized global growth slowdown argument and we know China is slowing. I think Europe is a hot mess right now, teetering on the brink of recession, and I would be looking elsewhere for investment ideas until at least after Brexit to see what is going to happen.
In stock news last week, BB&T and SunTrust announced they would combine in a $66 billion merger of equals and the largest bank merger in a decade. They say a new name will be chosen before the deal closes. I’m going to predict…’BB&Trust.’
It’s to be a merger of equals, but Suntrust shareholders will get BB&T shares. They say there is a lot of synergies between the two banks, which is a fancy term for overlap in the two companies and you can bet there will be some people losing jobs. Trust me…I’ve seen this movie before.
So, this is going to be a busy week and it is going to revolve around “trade”. U.S. and Chinese representatives will be meeting in Beijing this week to continue hammering out a deal, but the President has already told us that he and Xi, the President of the Peoples Republic of China, won’t meet before the March 1st deadline. Therefore, we will all be hanging in the balance to see if they extend the deadline or if President Trump hits them with more tariffs. Market participants are already saying that even if we get a deal it could be a sell the news event. And then we have the next deadline for another government shutdown, but I don’t think these matter as much as trade.
I urge you to stay tuned, and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
February 15, 2019
