Economic and Stock Market Commentary for the week of July 5, 2018

Alex Ralicki |

Continuing economic tensions with China are front and center on Wall Street these days, with our fraught commercial dealings with that fast-growing nation in the headlines almost daily. Specifically, a number of restrictive ideas were being floated as we turned the page on the first half in an effort to level the playing field with respect to trade and intellectual property. But whatever the possible long-range benefits of a less-forgiving approach, investors are uncomfortable in the short run. As for trade, the aversion to such disputes is long standing, going back to the ill-conceived tariff impositions during the 1930s, which many historians contend exacerbated the severity of the Great Depression.

Meanwhile, the domestic side of the ledger continues to shine, with recent reports showing solid gains in housing starts and new home sales, a modest rise in the Leading Economic Indicators, and slight declines in sales of existing homes and consumer confidence, with both categories remaining at high levels. Overall, the latest trends suggest that the economy may have grown by as much as 4% in the second quarter.

The next big issue is likely to be second quarter earnings. Here, expectations are high, as lower corporate taxes and an advancing economy should prove a tough combination to beat. Of course, with the bar set so high, individual disappointments are likely to be greeted harshly.

Politics are also likely to grab their share of headlines during the upcoming half, with the rhetoric on both sides of the political divide getting more contentious on a range of issues, as compromise becomes a lost art. Indeed, as the midterm elections draw closer, the intensity of the debates could ratchet up, with potential fallout on Wall Street if there are economic policy implications.

Meanwhile, investor confidence is somewhat more brittle now, with the Dow Jones Industrial Average recently falling toward the lower end of its 2018 trading range on concerns about the impact that our disputes with China and eroding commercial and political relationships with our allies may have on longer-term growth.

Conclusion: We think investors should stay the course, as the market continues to show resilience, but with a watchful eye out for possible headwinds that may more seriously upset the apple cart.