Weekend Reading – Uncertain Markets, Unending Shutdown

Making Sense of the Market & “Shutdown Shock”

It is hard to know precisely what is on the mind of the markets; wide intraday swings experienced last month suggest mood shifts were substantial and frequent. But a series of concerns have accumulated to threaten what has been one of the longest and strongest bull markets we have ever experienced. By analyzing the bricks in what became a wall of worry, we can provide some conjecture on how these issues might evolve during the balance of this year.

  • Global Growth is Slowing – Economic activity sailed through the first half of last year, but has been tapering off since. Some of this was to be expected; in particular, the stimulus from U.S. tax reform is past its peak.
  • The trade war between the U. S and China is doing significant damage – Several turning points in the market’s volatile fourth quarter journey can be linked approximately to changes in the tone of relations between the world’s two largest economies. Markets rallied in early December after the two sides shared dinner and announced a 90-day delay in tariff escalation.
  • The Federal Reserve is being too aggressive – In the midst of the market’s December anxiety, the Federal Reserve went ahead with a rate increase that had long been expected. This step was the latest in a continued a series of normalizing moves which affirm that the U.S. economy is performing well, and no longer needs the same level of monetary accommodation.
  • Policy-making in many parts of the word is becoming more erratic – The U.S government began the year with a partial shutdown. Relations between the Democratic House and the White House are deteriorating. Walls are rising in some spots but not in others.
  • Shutdown Shock – As of Saturday, December 22, the U.S. federal government entered a partial shutdown, with economic impacts growing larger by the day. This shutdown does not bring the entire federal government to a halt. Earlier this year, funding bills were passed for areas including defense, education, veteran’s affairs and energy, representing about 75% of the federal government’s functions. However, these bills were passed in a piecemeal manner that left other departments, including Homeland Security, Commerce, State, Justice and Interior, subject to continuing resolutions.

To learn more about the Shutdown Shock click here

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