Consumers and Trade Conflict | NorthCoast Navigator Jan 2020

January 15, 2020

Last month closed out a year that saw stocks and bonds rising in tandem. This is the first time since 1998 that both asset classes increased by such levels. This phenomenon was largely due to an accommodating monetary policy and an improving economic outlook combined with rising fear of trade conflicts and geopolitical tensions. The end of the year brought some optimism to the latter as the U.S. and China signaled a preliminary deal is close at hand and Brexit appears set for the end of January. U.S.

NorthCoast maintains opportunistic posture moving into 4th quarter

October 1, 2019

What happened in September?

After the volatility in August, U.S. equity markets rebounded to push the S&P 500 index positive for the 3rd quarter. The index now sits just over 1% below its record high set in July. During the month, investors appeared to rotate away from the more expensive momentum equities towards undervalued stocks. The tech-heavy Nasdaq finished the month with its first quarterly decline in 2019. Despite the general market rise during September, some cautious domestic economic data was released. Consumer spending grew at a modest 0.1% during August, below the average 0.5% a month during the first 7 months of the year. Slowed consumer spending still raises concerns that the economic slowing abroad coupled with continued trade conflict may be affecting the U.S. The Federal Reserve will also announce their rate decision at the end of October. By then, some new economic data will have been released and their decision will likely be clearer. For now, expectations are that the central bank will cut rates. International equities rebounded more strongly than the U.S. in September, but the general ACWI-ex U.S. Index was negative for the 3rd quarter. While economic and sentiment concerns loom larger abroad than in the U.S., equity prices are much more accommodating and technical indicators are solid.
 

 

Stocks move lower in August as trade war implications ramp up

September 1, 2019

 What happened in August?

Volatility returned to the U.S. equity market in August. After two positive and generally calm summer months, a series of headline-worthy events caused a few abrupt downturns that, despite recouping some losses towards the end of the month, dragged the S&P 500 down -1.7% for the month. First, investors reacted to the inversion of the 3-month and 10-year Treasury notes. While this signal is ominous and sparked some recession fears, it provides no certainty that one is imminent. U.S. economic data remains fairly strong and some extraneous factors such as extremely low international yields and a general flight to safe assets may be deepening the yield curve’s inversion. The U.S. and China publicly exchanged rhetoric to intensify the trade conflict which raised fears that continued tariffs will affect both economies and the global economy. However, discussions are set to continue in September and both parties appear to be leveraging the media to increase pressure on one another at the expense of global markets. Everything surrounding this trade deal is still in question and its impact has mainly been seen in lower consumer confidence in the U.S. Economic output is still growing and the second quarter GDP growth rate released in August was 2.0%. While this rate is lower than the first quarter, it still shows solid positive growth driven by corporate profits and consumer spending.
 

 

U.S. stocks closed out Q1 2019 with a positive March and notched the largest quarterly gains since 1998

April 1, 2019

What happened in March?

U.S. stocks closed out Q1 2019 with a positive March and notched the largest quarterly gains since 1998. The uptick was driven in part by growing consensus that the U.S. Federal Reserve will hold interest rates low due to concerns of slowing global economic growth and by some renewed optimism about U.S. – China trade talks. Valuations were also more attractive after the volatile market decline pared back stock prices in the final months of 2018. Domestic equities have recouped almost all of last year’s 4th quarter losses and prices have returned to more elevated levels. 
 
Both U.S. and global bond prices increased in the month of March, which appears to have been driven by some investors’ movements to safer assets due to global economic growth concerns and the general lack of inflation.  Uncertainty across the globe has continued, especially regarding Brexit negotiations, which garnered a lot of attention last month because of the inability of the U.K parliament to pass a Brexit agreement.

 

The strong start to 2019 continued in February on upbeat earnings and U.S. economic news

March 1, 2019

What happened in February?

The strong start to the year continued in February with a positive month for equities. Relatively upbeat earnings and economic news outweighed continued uncertainty and concerns about slowing global growth.

One of the top stories from the month was the U.S. extending the deadline for increasing tariffs on Chinese goods, possibly signaling that an agreement is near. However, the month came to an end with no firm indication of a conclusion to the negotiations. Additionally, concerns remain that any agreement will not bring an end to the rivalry between the two countries. As negotiations continue, the Chinese manufacturing purchasing manager index dropped to its lowest level in three years – reinforcing some concerns of a global slowdown.

While global growth might be slowing, the U.S. economy appears to be strong. Positive economic data was released last month including the GDP growth rate from Q4 2018 beating estimates, personal income growth and a rebound in business investment. Doubts remain however over the sustainability of the decade-long expansion. The Federal Reserve’s current “patient” stance hints at these concerns.

Internationally, emerging markets had only a slightly positive month after a large rebound in January. The U.K. is still struggling to reach a Brexit agreement and Canadian Prime Minister Justin Trudeau is facing domestic political controversy.

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