Tariff threats among the US, China, and Mexico continue to dominate the headlines. However, there was some good news over the weekend. The US president announced a deal with Mexico to avoid tariffs on Mexican goods in exchange for immigration enforcement measures.
The outlook remains muddled regarding China. More economic pain may be inflicted on both China and the US. That pain could eventually result in a trade agreement, according to the LPL strategists, possibly by the end of the summer. The next key event to watch is the G-20 Summit at the end of June. The presidents of the US and China are expected to meet, although Chinese leaders have not confirmed that meeting.
Reduced Earnings Forecast
Due to the drawn-out trade uncertainty and subsequent drag on business confidence and economic growth, LPL Research reduced its 2019 S&P 500 Index earnings forecast from $172.50 per share to $170. That is still above consensus estimates. And in the strategists’ view, the economic data hasn’t deteriorated enough to warrant a Fed rate.
Fed Intervention Possible
Trade uncertainty remains a primary risk to an otherwise solid economic outlook. There have been signs that economic growth could slow over the coming quarters. The bond market has signaled increasingly that the current monetary policy may be too tight for an economy hampered by a drawn-out trade dispute. According to the LPL strategists, at some point the Fed may have to intervene by lowering interest rates.
As the chart shows, LPL Research’s forecast is still above consensus estimates ($168 per share according to FactSet) and represents growth. The strategists see upside potential to this forecast depending on the path of negotiations with China.
Tune In Now
Listen to the entire podcast to get the LPL strategists’ views and insights on the ongoing trade war and other factors affecting the US and global economies. You can subscribe to Market Signals on iTunes, Google Play, or Spotify.
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.
For Public Use — Tracking #: 1-862530 (6/20)