Back to Real Life. The midterms are over, the Fed remains on course, and the earnings season is coming to a close. With those areas of uncertainty in the rear-view mirror, the market will need to refocus on the economic backdrop and the impact of trade. Stocks slipped on Friday with all three major indexes down as of midday. In today’s Intraday Update, we…
…Look at trade and the G-20 summit;
…Check on consumer sentiment in November;
…And explore what a stronger economy could mean for different groups.
Deep Waters, Strong Currents
With the midterm election behind us, the market is now back to its old themes and investors are realizing that things haven’t got any better.
The Dow Jones Industrial Average has tumbled 242.71 points, or 0.9%, to 25948.51, while the S&P 500 was off 29.22 points, or 1.0%, to 2777.61. The Nasdaq Composite has lost 136.93 points, or 1.8%, to 7393.95.
Trade remains one of the main threats to global growth. All eyes are now on the G-20 summit at the end of November, where President Donald Trump and Chinese President Xi Jinping are expected to meet.
“We continue to believe that the outcome of U.S./China trade talks are crucial to global markets. A deal, or at the very least a ceasefire that suspended tariff increases due in January would improve the global growth outlook for 2019, particularly with policy easing in China,” writes James Barty, strategist at Merrill Lynch Bank of America, in a note on Friday. “Failure would accentuate the deterioration in global growth and fully justify investors’ fears.”
Despite the uncertainty about trade, consumers remain upbeat. November’s Consumer Sentiment index remained near its high point for this economic cycle, with a preliminary reading of 98.3, modestly exceeding the expectations for a result 98.0, according to data released Fridayy. So far this year, sentiment has been better than in any year since 2000.
The fact that consumer sentiment hasn’t deteriorated despite rising uncertainty on multiple fronts is encouraging, according to Jim Baird, chief investment officer of Plante Moran Financial Advisors. “Uncertainty related to geopolitics, rising interest rates, trade disputes, equity market volatility, and the contentious environment in Washington are risks, but consumers appear to be taking those in stride.” writes Baird in a note on Friday.
The positive sentiment, coupled with strong wage gains, will likely drive consumers to further increase their household spending. And that’s good for retailers as they head into the holiday shopping season.
But the high-flying numbers might be masking some “important underlying shifts,” according to the release from the University of Michigan. Despite continuing robust growth in wage and employment, consumers are also expecting higher inflation and interest rates.
And things will play out differently across demographic groups. “Younger consumers have benefited most from more positive income trends and older consumers are more likely to complain about the erosion of their living standards due to rising prices,” says the release, “Rising interest rates weigh heavily on younger consumers who are more likely to borrow, and older consumers are more likely to benefit from higher returns on their savings.”
Write to Evie Liu at [email protected]