The Week Ahead – Springtime in the Markets

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.

Spring has definitely sprung! The weather has turned sunny, and everything is green; at least by southern California standards. The official beginning of spring was marked by the vernal equinox on March 20^th as the Sun crossed the celestial equator (an imaginary line in the sky above the Earth's equator). Not only are we seeing green shoots along the 405 freeway, the market too is showing signs of vernal renaissance. Indeed, the S&P 500 (domestic large cap stock index) is nearly back to its all-time high set on September 20^th.

The U.S. is a Goldilocks economy (not too hot, not to cold…) with growth at 2%, inflation at 2%, and fed funds near 2% for the coming years. With our forecast of no recession and stable growth, we believe it’s reasonable to expected continued positive returns from equities.

On Thursday we will get the initial print for first quarter GDP (Gross Domestic Product) growth. After last week’s trade deficit data showed a narrowing in February, we are significantly more sanguine about economic growth. Net exports will make a positive contribution to GDP in early 2019 after being a drag for the previous two quarters. One of the most accurate econometric models, the Federal Reserve Bank of Atlanta’s GDPNow model estimate first quarter economic growth increased to 2.4%. That is a significant upside shift from the one-handle number many economists expected at the beginning of the year.

We’re seeing a pickup in international markets as well. China recently reported a 6.4% GDP growth rate. While you always have to question the veracity of Chinese economic data, there is no question they are stimulating their economy at a level we haven’t seen since the Great Recession. Given increasingly globalized trade, stimulus in the world’s second largest economy, can create a virtuous cycle that spawns growth amongst all of China’s trading partners.

Whether it’s stronger than expected trade data, retail sales or a resurgent housing market, there is compelling evidence of springtime in the markets and what the famous economist John Maynard Keynes called “animal spirits” in the economic data.

Data deck for April 22-April 26: