The global stock market has had a terrific start in 2019, with the MSCI All Country World Index returning over 7% in January and adding to those gains in February. The key question on investors’ minds is “will the stock market gains continue?”
As we discussed at a recent “Portfolios and Pints” event, there has definitely been an improvement in multiple areas of the economy and markets. Not only has the Federal Reserve calmed fears with their willingness to be “patient” with raising interest rates, but we have seen notable improvements in credit conditions (the banking system looks healthy), consumer confidence is rising, and recent price increases of industrial metals (like copper) could be a sign that global economic activity is reaccelerating.
Looking forward, the backdrop is good for stock market gains to continue, but the pace of those gains is likely to slow relative to the first two months of this year. In the near term, there are three critical dates and events in March that could have market-moving implications:
- March 1 – China/U.S. Trade Deadline. This particular date has already experienced some noteworthy changes which have been positive for markets. According to the original plan, March 1 was a critical date where the United States would increase tariffs from 10% to 25% on $200 billion worth of Chinese exports. In a tweet on February 24, the President announced he was delaying the deadline as progress had been made on “important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues.” The delay prevents an additional $50 billion of tariffs from going into effect which has seemed to calm business owners and financial markets. As of now, a meeting between President Trump and Chinese President Xi Jinping is supposed to happen in late March at Trump’s Mar-a-Lago resort in Florida. According to Trump, “there could be very big news over the next week or two” if trade talks go well.
Source: Twitter, NYTimes.com
- March 20 – Fed Policy Setting Meeting. The next big meeting for the Federal Reserve happens on March 20. In October/November of last year, markets were virtually certain this meeting would mark the first of four rate increases throughout 2019. However, after the market turmoil in December and the Fed’s shift in rhetoric to be “patient” in increasing rates, the market is expecting the Fed to hold rates steady. We agree the Fed is likely to keep rates unchanged at the March 20th meeting, but investors will be looking for clues through Fed Chair Powell’s press conference as well as the Fed’s “dot plots” as to what path rates might follow later in 2019.
- March 29 – Brexit Deadline Between the U.K. and European Union. The deadline for the United Kingdom to officially leave the European Union is 11 pm local time on March 29, 2019. However, there are already talks this date may be extended. Earlier this week, U.K. Prime Minister Theresa May said she is open to the possibility of delaying Britain’s exit from the E.U. and has called for a series of critical votes on March 12, 13, and 14 which would confirm the exit or further delay it. While we do not claim to be experts on British politics, the entire Brexit situation appears to be a bit of mess because there is no transition plan even if the U.K. leaves the European Union. Brexit is a situation where there are more questions than answers for everyone but talks about Brexit will heat up in mid-March and could have market-moving implications if no agreement is reached prior to the March 29th deadline
The month of March has the potential to be even more news-worthy for markets than usual. As we approach March, we’ll be staying tuned to the potential news surprises – positive or negative – from the events themselves, as well as any shifts in sentiment/psychology on the part of investors.