Highlights
• Economic growth looks to be accelerating, although trade issues and rising interest rates are potential risks.
• We don’t believe trade concerns will ease any time soon, but they should not derail the current global economic expansion.
• Over the next year, non-U.S. stocks may assume a leadership position relative to U.S. markets.
The Dow Jones Industrial Average and S&P 500 Index both hit new record highs last week as investors focused on positive economic news and looked past ongoing trade issues.1 The S&P 500 was up 0.9 percent for the week.1 The materials, financials, energy and industrials sectors led the way, while defensive areas like REITs and utilities lagged.1 Bond markets were in focus last week as the Treasury selloff continued. The 10-year Treasury yield pushed as high as 3.09 percent last week, close to the 2018 high of 3.12 percent it reached in May.1
Weekly Top Themes
1. The Federal Reserve is likely to raise rates again this week, but monetary policy will be tougher to gauge from here. The fed funds rate is approaching neutral, meaning policymakers must increasingly balance upside and downside risks.
2. Rising wages should help economic growth to continue accelerating. This could present a risk for the Fed if the economy starts overheating.
3. The economic cycle may be in its later stages, but growth can still continue. The fed funds rate is still relatively low given still modest inflation. We also think the ongoing effects of tax cuts, higher capital spending and a healthy consumer sector will help keep this economy going.
4. Trade tensions are likely to continue escalating. Investors mostly shrugged off the Trump Administration’s latest tariff announcements, but a near-term deal with China looks unlikely. We do not expect tensions to ease until at least after the midterms.