- Fed acknowledges inflation rise but doesn’t alter course. The Federal Reserve (Fed) largely met market expectations at the conclusion of its meeting yesterday, holding the fed funds rate at its current level and seemingly maintaining its course for gradual rate hikes in the future. The post-meeting statement added another mention of the inflation target being “symmetric” in that members would tolerate inflation slightly above or below the 2% target. Despite the Fed’s acknowledgment that inflation is likely to soon meet its 2% target, language in the statement did not change investors’ expectation for 2-3 additional rate hikes in 2018, with the market effectively split between the two potential outcomes.
- Expectations are low for trade negotiations in China. There are a number of reasons for investors not to get their hopes too high for immediate progress on U.S.-China trade discussions as U.S. trade officials arrive in Beijing today. While we remain hopeful for a negotiated outcome that markets will tolerate, the process to get there will likely be uneven and take more time. Despite some common ground, negotiations are sure to be difficult as the United States seeks a level playing field for U.S. companies doing business in China. We think a lot of the trade-related risk to economic growth and corporate profits has been appropriately priced in to the stock market at this point but will continue to monitor developments closely.
- Surveys suggest global manufacturing is in good shape. A series of Purchasing Managers’ Index (PMI) data released this week paints a picture of a global manufacturing sector that remains solidly expansionary. Markit’s Global Manufacturing PMI rose to 53.5 in April. Europe has experienced the biggest drop of about four points, but remains solidly expansionary at 56.2; Japan saw a small uptick, and China held steady. We continue to expect developed international economies to grow GDP at a near 2% pace in 2018. Emerging market economies may grow 5% this year (our forecast remains +4.8% but Bloomberg consensus is +5.0%), supporting our preference for those markets over European-dominated international developed markets.
- U.S. earnings revisions are still rising as international estimates dip. Over the past month, since earnings season in the United States began, estimates for S&P 500 Index earnings per share for 2018 have continued to climb. Overseas earnings have not experienced this same bump, perhaps in part because of the slightly softer economic growth along with currency impact. The strong domestic earnings environment continues to underpin our preference for U.S. equities exposure.
Monitoring the Week Ahead
- Trade Balance (Mar)
- Markit Svcs. PMI (Apr)
- Durable Goods Orders (Mar)
- Eurozone: CPI & PPI (Mar)
- China: Caixin China Svcs. PMI (Apr)
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
For Public Use – Tracking # 1-726753 (Exp. 5/19)