Monthly Market UpdateSubmitted by Texas Legacy Wealth Management on February 4th, 2020
Stocks had a mixed start to the year after finishing 2019 on a strong note. The S&P 500 was down slightly, about -0.2%, in January as investors reacted to headlines ranging from coronavirus, the impeachment trial, and of course global trade. (YCharts)
The US-China trade war may have been the biggest story for investors last year and we have already seen major developments in the first few weeks of 2020.
- Phase One Trade Deal: The US and China signed the first phase of a trade deal in mid-January after almost two years of negotiations marked by threats and escalating tariffs. The key elements of the deal are protection of intellectual property, transparency in currency, and a commitment to an increased level of trade ($200B of additional imports by China). The US will maintain tariffs on two-thirds of Chinese imports and will potentially remove those tariffs when a phase two deal is completed. (Bloomberg)
- USMCA – The United States-Mexico-Canada Agreement was signed into law by President Trump on January 29th after passing through the Senate earlier in the month. The much-anticipated agreement with two of the largest US trade partners is pending ratification by Canada as the Canadian parliament returned to session the last week in January.
Many investors hope that this progress will reduce uncertainty and boost business spending potentially leading to an extension of the economic cycle. Only time will tell how these deals hold up and what impact they’ll have on the economy, but these agreements have generally been viewed as positive steps toward reducing trade conflict around the globe.
Currently, our economic dashboard is showing signs that we are getting later in the economic cycle and while we believe the chances of recession have risen over the next 9-12 months, we don’t feel that a recession is imminent. One element of our dashboard, sentiment, was recently downgraded as this contrarian indicator showed signs of investors becoming overly optimistic. While sentiment can change quickly, an overly optimistic sentiment may lead to an increased chance of volatility. We will continue to monitor this, the current economic environment, and major market moving developments and will be ready to make changes as needed.
Your Team at TLWM
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