Fresh US consumer inflation figures that came out this past week were more or less as expected, taking some short-term heat off the Federal Reserve. This stability, though, stands in sharp contrast to the increasingly strident political chaos that is now roiling all financial markets—stocks, rates, bonds and currencies. Expectations for a cut in March have evaporated. Consequently, yields are still very high relative to an often chilly, uncertain prevailing economic climate.
The S&P 500 index has managed to stay near all-time highs, supported in part by dollar strength and buoyant US tech stock performance. The $FB, $AAPL, $MSFT and $GOOG are all making outsized impacts on overall S&P 500 profits which are expected to rise by more than 8%. Even with all of the positive projections, US markets are anxious. A equal cause for our unease derives from the persistent influence of the economic factors on the political front.
Worries about the Federal Reserve’s independence have returned to the forefront as political noise has reemerged. Investors are growing more nervous at the thought of external pressures shaping the Fed’s policy making. That level of unease is clearly seen in market behaviors, as rates and bond prices are indicating the danger and opportunity behind the changing political dynamics.
In Asia, equities are at record highs, supported by their own particular economic storylines. The trade crisis is boiling over outside America’s borders as well, adding to a potentially nasty global economic situation. Oil prices are reacting to other, new geopolitical disruptions, adding more uncertainty to an already murky economic picture.
Additionally, the US markets are continuing to do very well. The combination of strong economic data, which would normally push down bonds, and a big political storm creates a tough environment for investors. Market analysts continue to encourage all involved to keep their guard up. They’re tracking and weighing how these factors will shape forthcoming policy decisions and market conditions.