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The China Issue
First up: China. Over the weekend President Trump tweeted a threat to raise tariff rates on $200 billion of Chinese imports and institute new tariffs on an additional $325 billion of Chinese goods. Nonetheless, LPL’s strategists expect a trade deal to come through shortly. As they note, the threats conflict with the tone of comments from key negotiators on both sides. The president also has a track record of getting toughest as negotiations near the finish line. Case in point: NAFTA 2.0.
Interest Rates Holding
The Fed left interest rates alone last week. Many were hoping for more clarity regarding potential rate cuts later this year. Inflation remains quite low, so market participants are looking for the first rate cut in 10 years. With GDP above 3%, profits strong, and a full employment picture, the LPL strategists don’t see that happening.
At last week’s news briefing, Fed Chair Jerome Powell said that a number of issues were holding back inflation. He also noted those issues were likely “transitory.” Following those comments, treasury yields fell, the dollar strengthened and stocks sold off.
Strengthening Economy
The strategists also note that the Q1 productivity game is at its best level in 10 years. Nonfarm payrolls rose 263K, higher than estimates for a 190K gain. Average hourly earnings grew 3.2% year over year. That’s at a level that should continue to bolster consumer confidence and support consumer spending. Unemployment fell to 3.6%, a cycle low.
Productivity spiked in Q1, up 2.4% year over year. It was the best jump in nearly 10 years. Growing productivity helps offset rising labor expenses, as companies get more output per dollar spent. That also help mitigate inflationary pressures, support healthy profit margins, and extend the nearly 10-year old economic cycle of growth.
The bottom line according to LPL’s strategists: the U.S. economy is on firm footing.
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Listen to the entire podcast to get the LPL strategists’ views on the economy and recent market news. You can subscribe to Market Signals on iTunes, Google Play, Spotify
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IMPORTANT DISCLOSURES 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. All performance referenced is historical and is no guarantee of future results. 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.
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