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Powell, Tariffs and Stocks – OH MY!

Learning Opportunities

What a week it was in the financial markets. Each day gave us another economic report to dissect and digest, all the while trying to figure out how far the stock market was going to rise and fall by the closing bell.  Federal Reserve Chairman (yes, we are back to the full Chairman title) Jerome Powell gave an upbeat report on the economy during his first testimony to Congress. Powell does not see any signs of the economy overheating and believes the Federal Reserve can strike a balance with additional rate increases, while moving inflation closer to two percent.

Just as Powell was commenting that global trade without trade restrictions was beneficial for world economies, President Trump announced plans to impose tariffs on steel and aluminum imports. This caused a new and stronger wave of fear in the financial markets over the potential negative impact the tariffs will have on the already struggling auto and manufacturing industries. By the end of the day, stocks had bounced over 700 points, and bond yields fell five basis points across the curve.

Other Key Indicators this Week:

GDP – Economic growth was slightly slower in the fourth quarter than initially reported, increasing 2.5 percent instead of 2.6 percent. Business investment increased 6.6 percent, two-tenths less than originally reported. The other contributing factor to slower growth came from a larger drawdown of inventories. Companies chose to pull from inventories rather than produce more goods. The larger drawdown could result in stronger manufacturing later in the year as companies need to restock supplies.

Manufacturing – Two key reports this week gave a conflicting picture of manufacturing.  Durable goods orders fell 3.7 percent in January and were revised lower for December. The trouble spot in the report was a 0.2 percent decline in core capital goods, after falling 0.6 percent in December. This was the first back-to-back drop in core capital goods in almost two years. On the bright side, the ISM manufacturing survey jumped to 60.8 percent in February, the highest reading in almost 14 years. Both orders and production measures remain near post-recession highs. The employment component surged over five points.

Housing – Both pending and new home sales plummeted in January, due to a combination of harsh weather, higher prices and a lack of inventory. New home sales fell 7.8 percent, with large declines in the South and Northeast. The gauge for pending home sales fell 4.7 percent to its lowest level in over three years. Purchases were down in the four geographic regions of the country. The S&P CoreLogic Case-Shiller national home price index increased 6.3 percent from a year ago, the largest gain since 2014.

Strategically for Credit Unions:

Stay calm and focus on the long term. Consumers are still spending, and loan demand remains strong, despite interest rates moving higher. The savings rate increased to 3.2 percent in January, after incomes rose twice as much as spending. The income report reflected a $115.5 billion annualized drop in personal taxes. As the paychecks continue to be boosted, the outlook for consumer spending looks promising.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.