After a week that felt like nothing but pure volatility, it may be helpful to focus on company commentary regarding earnings outlooks. In short, things are slowing, particularly among industrial firms and automobile manufacturers. Geographically, one of the worldwide growth engines, China, is sputtering.
Investors are having a hard time reconciling these facts with the constant drumbeat from the Federal Reserve about the need to raise interest rates to prevent the US economy from “over heating” and generating unacceptable levels of inflation. Thus, the excessive market volatility.
Ultimately, the data will win out. So, we suspect that the Fed will become a bit less aggressive. And this may become evident fairly shortly. Moreover, any surprise resolution to the tariff trade war fiasco is likely to turn the market quickly. After all, the incumbent party needs a strong economy and a reasonable bull market or its incumbency will be at risk.
It’s also important to note that despite some disappointing earnings outlooks, real pockets of strength remain. Communications, software, data center, and cloud infrastructure all standout. Not to mention biotech may also offer near term investment promise.
A number of market catalysts could lie just ahead- a more restrained Fed, trade war resolution, clarity on the degree of the slowing economic growth rate (at least for now there seems little likelihood to fear an imminent recession despite decelerating growth) to name three.
Keep the faith.