HFM Market Insight

Posted by Team HFM on February 08, 2019

We have no major change to relay in this newsletter about our positioning and view of the markets since our late 2018 comments, which were for continued growth in 2019.

In fact, if anything, we are more convinced about our posture (not to the point of dogma!) being correct. The most recent announcement of the addition of over 300,000 new jobs in January, the Federal Reserve’s more emphatic posture about slowing down its rate increases, and solid corporate earnings reports all point to continued growth in 2019.   

Of note, our portfolio managers attended the CFA Society’s Annual Forecast dinner in late January. Brian S. Wesbury of First Trust in Chicago made a presentation. He noted that many analysts blamed the Fed’s unwinding of its “quantitative easing” for a slowing of the economy and the stock market swoon at the end of last year. He compared growth rates in the economy and interest rates in the U.S. and Canada. The U.S. had quantitative easing, Canada did not. The result was both economies had similar growth and similar interest rates. As a result, Wesbury did not feel quantitative easing had a large impact in the recovery from “the great recession” nor did he feel that reversing quantitative easing was a culprit in the most recent stock market downturn.   He also commented on tariffs, which have been a worry to investors and have caused periodic volatility in the markets. In a nutshell, he observed that the developed economies -- the EU, Canada, Japan and U.S. -- have average tariffs across all goods that range from a low of 3.4% in the U.S. to 5.2% in the EU. Contrast this with those of the more emerging economies in Asia which range from 13.8% in India to 9.8% in China. As the Asian countries reduce their tariffs over time it will open up the opportunity for more exports from the developed countries. While the negotiating process can be noisy and messy, a realignment has been long overdue and is underway.