LPL Financial Market Signals Podcast

Familiar Topics Dominate the Discussion l LPL Market Signals Podcast

LPL Research

The ongoing China trade dispute. The Fed’s action — and non-action — on interest rates. Improving economic data. They’re familiar topics in the economic news. They’re also once again the focus of discussion in this week’s Market Signals podcast.

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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.

Chart - Productivity Picks Up Amid Accelerating Wages

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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