"Kee" Points with Jim Kee, Ph.D.

  • What’s Ahead for US Stocks?
  • China Trade Points 

What’s Ahead for US Stocks?

The US stock market’s strong first quarter performance has prompted an obvious question: “Given the strongest quarter in almost 10 years, what are the odds that the market continues to rise through year’s end?” I asked one of our analysts, Josh Taenzler, to run the numbers on this, and what he found is pretty interesting. It turns out there have been 8 years since 1928 that had strong first quarters similar to the one we just experienced. Following those quarters, the market continued upward to finish higher seventy-five percent of the time. If you take out 1930, which began strongly with a bounce following the 1929 stock market crash and then declined sharply (the onset of the Great Depression), that number of strong finishes increases to 7 out of the 8 years, or 88 percent of the time.

China Trade Points

US-China trade negotiations continue to take center stage (just ahead of Brexit) as the key focal point for global equity markets. Business capital spending has been noticeably weak during this economic expansion, even after President Trump’s corporate tax cut that reduced rates from 35% to 21%. Non-defense capital goods orders have fallen since mid-2018, and many economists attribute this to US-China trade strife. Specifically, large global companies have put off capital spending plans until they get more clarity on trade rules and the implications for international supply-chains (Asian Times). Apparently, some progress was made over the weekend, which is good not only for China and for the US, but also for Europe and peripheral economies that trade with China (e.g. South Korea, Taiwan). In fact, economist David Goldman asserts that China’s ability to weather an export decline from trade uncertainty is actually better than many of these other exporters, including Germany. That is because China has a greater ability to compensate for export declines by stimulating domestic demand through tax-cuts, monetary policy and fiscal spending. That’s called “policy flexibility,” and China’s is considered to be higher than many other economies.