Last week was another week of up and down in the stock market that ended with the major market indices little changed. To sum it up, the market was treading water ahead of this week’s Federal Open Market Committee meeting as it digested the latest news emanating from Washington. Two weeks ago, we faced questions and uncertainty over Trump’s steel and aluminum tariffs and while those have since died down, last week brought a new round of uncertainty as the administration slapped sanctions on Russia as it also prepares tariffs and other anti-China measures and Trump claimed the US is at a trading disadvantage with Canada. At the same time, we had more departures from the administration, which could impede its ability to advance Trump’s agenda in the short-term, and special counsel Robert Mueller subpoenaing the Trump Organization as part of his investigation on Russian interference in the 2016 presidential election.
Much like it did in 2017, it’s looking like Washington will take center stage in 2018, with the only difference being the White House taking the spotlight rather than the Fed. Over the last several years, the stock market was heavily influenced by the Federal Reserve, but as we’ve seen in recent weeks Trump and his administration, inadvertently or not, have won the focus of market watchers.
The issue from an investing standpoint is one of uncertainty. From the tariffs to trade talk as well as the revolving door that is the administration, we’ve gotten a steady flow of uncertainty as of late. Here’s the thing – while the stock market is no fan of uncertainty, it appears that keeping opponents off-balance is a key part of Trump’s negotiating style, which likely means the stock market to be had in the coming months will be very different than the one we’ve seen over the last few years. Rather than the steady climb we experienced in 2017, we’re likely to face continued uncertainty as Trump looks to tick down his presidential agenda and more likely than not the stock market will remain on the edge of its seat.
Recent data should make for a dovish Fed monetary policy meeting
Offsetting the Washington news flow last week, we received several additional pieces of economic data that helped complete more of the puzzle that has been evolving the last few weeks. The result was the Atlanta Fed downgrading its GDP view for the current quarter to 1.9%. That’s down from the robust forecast of more than 5% at the start of the quarter.
Given the change we’ve witnessed in the Citibank Economic Surprise Index (CESI), these negative GDP revisions are far from surprising, and they are joined by cuts from JPMorgan (JPM) as well as Goldman Sachs (GS). J.P. Morgan cut its GDP forecast from 2.5% to 2% for the current quarter, while Goldman Sachs reduced its call from 2.0% to 1.8%.