US equity markets have recovered sharply since, however, headwinds remain. US stocks moved quickly from over-bought to over-sold, as investors’ worries over US recession, trade tensions and Fed tighter monetary policy faded. Federal Reserve Chairman Powell’s pivot from tightening to neutral/dovish has pushed stocks to regain 50% of losses. Still, we retain our neutral slightly defensive position: there are key uncertainties. Volatility has declined but remains well above 2017 levels. Investors should be prepared for normal volatility.
Corporate earnings provided little clarity. A renewed focus on results is likely to develop into realistic valuations. December data said 50% of CFOs believe the US economy would be in a recession by end 2019. Consumer confidence has fallen sharply. The average US consumer sees chaos in domestic politics. Unemployment remains near historically low levels and job growth remains strong. A strong bounce in mortgage applications suggests improvements in housing. These are mixed messages, so investors should remain vigilant.
By Peter Rosenstreich
