Things just got interesting – maybe. It is hard to write anything definitive given how quickly events are unfolding. Investors were taking turns being spooked by possible trade wars, cancelled (but now rescheduled) Korean denuclearization summits, and elevating unrest in the Middle East. The US market continues its volatile tug-of-war between heavy fiscal stimulus and tightening monetary policy.
Spring is taking its sweet time arriving on the East Coast of the US – much of April was cold and wet. There were several “head fakes” – days when the temperatures rose and the rains dried up. But just when it seemed safe to put away the winter coat, another cold front would blow through and the cycle would start again.
Spring traditionally is a time of rebirth and renewal – the weather starts to turn, flowers begin to bloom, baseball fans start to fantasize once again, and romance is in the air. But as March slips into April in 2018, the markets decidedly are suffering from hay fever – sneezing, wheezing and, at times, crashing to the ground.
We view the events of late January and early February as healthy – the final “death spasm” of market reliance on central bank policy, and a return to more normalized market conditions – volatility returns, earnings and fundamentals matter, and a reminder that stocks can go down sometimes as well as always up.
The global economy continues to grow, global manufacturing is solid, corporate earnings are strong, and we already are beginning to see here in the US the potential growth catalyst provided by the year-end tax legislation (bonuses are being paid, hiring is increasing, and capital investments are increasing).
Interestingly, for everything else he wrote about, William Shakespeare almost never wrote about anything religious – the above passage is one of his few that that even remotely addressed anything theological or spiritual. We don’t know if this is because he was areligious or because he was too savvy to engage in any theological controversy during a fierce Catholic vs. Protestant political regime (we tend to believe the latter).
Goldilocks is going back for thirds. The beneficent global economic regime we’ve described for the past several months remains solidly in place – global economic growth (especially in manufacturing), strong corporate earnings and revenues, raging equity markets, low interest rates, and an almost frightening level of market complacency.
The “Goldilocks” regime we described last month remains solidly in place – global economic growth (especially in manufacturing), strong corporate earnings and revenues, raging equity markets, low interest rates, and an almost frightening level of market complacency.
As we transition from Q3 to Q4, the global economy and markets seem much like that third bowl of porridge in the Goldilocks story – everything is just right.
As we publish this month’s Commentary, Hurricane / Tropical Storm Harvey continues to pummel Houston and the surrounding areas. The flooding is intense, the damage will be massive, and there will be tremendous human and economic suffering as the rains subside and the waters all-too-slowly recede.