Since the U.S.-China trade
conflict resumed in early May, investors have been off balance. The possibility
of escalating tariffs on Mexico heightened economic uncertainty. Then, last
week’s unemployment report arrived with less than stellar news – just 75,000
jobs were created in May. The number was well below expectations. The Bureau of Labor Statistics revised March
and April employment numbers downward, too.
We know investors hate
uncertainty. So, why did major U.S. indices rally?
The answer may be hope. There
was hope negotiations with Mexico would produce results and tariffs would be
avoided. There was hope trade issues with China, in tandem with
less-than-stellar economic news, would encourage the Federal Reserve to cut
rates. There was hope lower rates would stimulate the economy and lift share
prices higher.
Investors were right about
Mexico and tariffs.
On Saturday, The Wall Street Journal reported the United
States and Mexico reached a last-minute agreement on immigration that takes tariffs
off the table for now. It was good news. Before the agreement was
reached, the vice president of the Center for Automotive Research told PBS NewsHour, “…the cost of a vehicle, a
new vehicle in the U.S. is going to go up somewhere between $1,100 and $5,400 a
vehicle…It will hit GDP, up to [a] $34 billion hit to GDP. And we would see
almost 400,000 American jobs disappear.”
Investors may be right about
interest rates, too. Expectations for Fed rate cuts are rising. MarketWatch reported, “The fed fund
futures market now show traders see a 72 percent chance of a rate cut at the
Fed’s July 31 meeting, and an around 23 percent probability of a rate cut in
the June 19 meeting.”8
Comments
Post a Comment