by Craig MacKinlay
With the arrival of the end of the first quarter, questions about the state of the economy and the level of the stock market are common. Is a recession on the horizon? Is the U.S. stock market over-valued? What is the bond market telling us about the economy? Considering these issues is the goal of this month’s Partner Talk.
Implications of the political environment are perhaps receiving more attention than ever. Much of the concern relates to the potential impact of unresolved trade disputes. The prospect of agreements with both China and Europe are uncertain and the revised U.S. – Mexico agreement is still not completed. If these disputes are not resolved, a negative impact on U.S. economic growth will likely result and downward pressure on market values will result.
On the positive side, the absence of trade agreements has not yet led to a significant drop in the stock market. Indeed, the S&P 500 index was up by 13.65% in the first quarter. This strong first quarter more than made up from a large decline observed in the fourth quarter of 2018. Nonetheless, continued trade disagreements could pose a problem for the market in the near future. However, while acknowledging this possibility, the behavior of the market during the past few months suggests that investors have concluded that continuing trade disruptions will have only a modest effect on the U.S. economy.