Investors anticipating Fed rate cuts in the months ahead have become inversely sensitized to economic news supporting continued economic expansion. Last week’s surprisingly tepid payroll report and today’s reassuring read on U.S. retail sales resulted in opposing stock price reactions.
After a huge run to start the year, equity markets declined throughout May as trade tensions re-escalated and fears of slowing economic growth came back into focus. This week, equity markets moved sharply higher with the S&P 500 closing within 2.5 percent of its all-time high.
As May draws to a close, equity investors were not treated well. Concerns over a slowing economy and heightening trade tensions with China weighed on investor sentiment. The S&P 500 fell over 6 percent for the month, which is the first negative month of May since 2012.
We have continued to closely monitor economic indicators for tariff-related impacts on business confidence but up to now it didn’t seem to have affected sentiment. However, that narrative seems to be changing, and we expect the administration will take note.
It’s the tail-end of the first quarter of 2019 earnings reporting season and the results have been better than expected. While corporate earnings growth was up 22 percent in 2018 due in part to tax cuts, this year those same cuts will provide limited benefits and corporate earnings growth is expected to only be up around 5 percent for the full-year 2019.
Although tariffs and trade disputes have been front and center in the news, their impact may not yet be felt by U.S. consumers. If you’ve purchased a washer and dryer recently, it’s likely that you now have firsthand and inadvertent experience bearing their cost.
While the broad market finished the holiday-shortened week positive, healthcare investors weren’t as fortunate. Continued chatter regarding “Medicare for All” as well as a Health and Human Services proposal to ban drug rebates for Medicare are weighing on the sector.