Equity markets edged up last week amid month end payday flows and hope of a China/USA trade deal. The S&P 500 rose 0.4% and held around 2800. Energy and technology lead the move as optimism of 2h19 growth picked up. Fed Chair Powell reiterated the Fed’s patient stance. We expect the leadership in China and cyclical stocks to continue into quarter end at a slower pace. Active investors dumped $150 billion in stocks in November and December of 2018 and are trying to “get back in”.
Overnight, S&P500 futures are up 0.3% on optimism about a U.S./China trade deal. China and the U.S. are in the final stage of completing a trade deal, with Beijing offering to lower tariffs and other restrictions on American farm, chemical, auto and other products and Washington considering removing most, if not all, sanctions levied against Chinese products since last year.” The formal deal is expected around quarter end which could provide about 2% upside from current levels. However, it likely be lurch and grind at best from these levels.
As stated last week, we are already shifting behind the scenes into healthcare and staples as 1) there is value there now and 2) expect a 2nd quarter 2019 mild pullback in the market. Stock buybacks have peaked for the 1q19 and passive flows will slow for the next 4-6 weeks. The U.S. economic data continues to increasingly disappoint. Retail sales, durable goods orders, and existing home sales all have missed estimates recently.
We will be posting our outlook closer to mid-year but expect us to continue to make some adjustments in advance of the second half. Our first half 2019 market outlook and commentary can be found at https://oakharvestfg.com/2019-first-half-outlook/.
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