LPL Financial Market Signals Podcast

Economic Growth vs. Trade War l LPL Market Signals Podcast

June 04, 2019

LPL Research

In this podcast LPL’s strategists discuss the US’s longest cycle of economic growth and the effects its expanding trade wars on the global economy.

For the stock market to make a run at our year-end S&P 500 Index target or even just to break through to new highs, then we’re probably going to need to see yields rise.

- Jeff Buchbinder – CFA Equity Strategist, LPL Financial

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The economic cycle turns 10 next month. It’s the longest cycle of growth ever for the U.S. In this week’s Market Signals podcast, the LPL strategists discuss why it could continue for many years.

While worries continue to creep in, the strategists say their five forecasters for late-cycle warnings suggest this cycle has plenty of life left in it. Stock market breadth, valuations, the economy, and leading indicators all remain quite strong.

A potential worry is yield curve. The strategists expect it to steepen before the year ends on positive economic data and potentially good news regarding trade.

One of the big surprises this year has been the sharp decline in global yields. What does this mean when the bond market seems to be flashing a major warning, yet the stock market remains strong? According to the strategists, rates should increase due to the pace of economic growth. With earnings expected to grow at a mid-single-digit pace in 2019, new highs for stocks this year are possible.

Trade War Expands

The US-China trade war continues to worsen. China halted US soybean purchases. It’s also putting FedEx on a list of companies it may blacklist as “unreliable” because of misrouted deliveries. Those actions come after the Trump Administration imposed a ban on business with telecom giant Huawei Technologies. There’s also a growing threat that China will impose export restrictions on the highly valuable rare earth metals.

The battle is also spilling over to other countries. The US is now threatening 5% tariffs on Mexico, along with removing India’s designation as a developing country. The continuation of these issues could hamper global economic growth.

G20 Summit Brings Hope

The LPL strategists do think there is potential for a quick resolution with Mexico. Things with China are more uncertain. The G20 Osaka Summit on June 28-29 could be what is needed to break the impasse and generate a deal, or at least a truce, before summer is over.

Chart - U.S. Leads 2019 Global Yield Rout

The LPL strategist continue to think the US economy remains on strong footing. Lower yields in the US are due more to a big rush for the safety of US debt versus a worry over future growth.


Listen to the entire podcast for more in-depth insights into the current economic situation. You can subscribe to Market Signals  on iTunesGoogle PlaySpotify

 

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