The Week Ahead – A First for Everything

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

Since the NCAA Men’s Basketball Tournament first started in 1939, no #1 seed has ever been upset by a #16 seed. Until now! Congratulations to the University of Maryland Baltimore County Retrievers for being the very first as they defeated the University of Virginia. The other news beyond March Madness last week was the continued volatility in Washington as President Trump dismissed Secretary of State Rex Tillerson and replaced him with CIA Director Mike Pompeo. This follows on the heels of economic advisor Gary Cohn resigning the previous week. The Geopolitical Risk Index (an index that counts the occurrence of words related to geopolitical tensions in 11 national and international newspapers) is currently above its last heightened risk period which was the North Korea missile crisis last year. The other two periods that have exceeded the current environment? September 11, 2001 and the Iraq invasion in 2003.

With the market already pricing in a 95% chance of a rate hike by the Fed at this week’s FOMC meeting, investors will be more focused on any potential changes to the Fed’s dot plot. At the start of the year, expectations of total hikes in 2018 were three, but the consensus has been slowly moving towards a possible fourth rate hike given the more recent language and posturing of Fed officials. Additionally, it would not surprise many if the long-term dots start to inch upward further given the strong employment environment and continued economic growth that we have seen recently. At this point, if the Fed doesn’t hike this week it would will likely cause dramatic volatility as investors are forced to rethink their current economic views. Oh yeah, and going back to that Virginia/ UMBC game, Virginia was a 21-point favorite. There’s always a first for everything.

Data deck for March 17 – March 23: