Little to move markets in the SOTU. President Trump’s speech last night offered little in terms of market-moving developments. There was no mention of a national emergency declaration to build the wall, though that may still happen. There was no mention of taxes (other than references to socialism), and we continue to believe it is very unlikely that Republicans would trade tax increases for one of their priorities, or a debt limit increase. One area President Trump focused on in his speech where policy risk is rising is healthcare, where he ratcheted up calls for regulatory action to reduce drug prices. We have been cautious on the healthcare sector but are watching for opportunities to buy on politically-driven weakness given the limits to how much impact policymakers could potentially have and the age of the business cycle.
Mr. Mnuchin (and Lighthizer) travel to Beijing. The U.S. Treasury Secretary and the Trump Administration’s chief trade negotiator are heading to Beijing early next week to further trade talks ahead of the March 1 deadline. President Trump has yet to commit to meeting Chinese President Jinping, though U.S. officials chalked that up to the amount of work still needed prior to the two leaders hashing out the final compromises. While an accord by the end of the month is highly unlikely, an extension to the tariff-truce that began Dec. 1 is, assuming the President is satisfied with progress at that time.
5-day winning streak. U.S. stocks have shown impressive strength so far this year. The S&P 500 Index just capped its best January in over 30 years, and has kicked off February with a 5-day winning streak. If the S&P 500 closes up today, it’ll be its first 6-day winning streak in about a year. Stocks have bolstered by heavily oversold conditions through the end of December, and improving economic data and flexible monetary policy have aided the rally.
Bear market recoveries. U.S. stocks are recovering from the worst slide in seven years, and the S&P 500 has now gone 93 days without a new record high. While it’s been a tough waiting game for investors, history shows recoveries from intraday bear markets (what we saw late last year) take time. On the LPL Research blogtoday, we’ll highlight the S&P 500’s path to new highs based on what we’ve seen in past slides.
A few details on productivity. This morning, the U.S. Labor Department released a few details from its fourth-quarter report on worker productivity, which has been delayed from the government shutdown. Manufacturing productivity increased 1.3% in the fourth quarter (higher than 1.1% third-quarter growth), while third-quarter nonfarm productivity growth was revised down to 2.2% (from the 2.3% initially reported). The release didn’t include an update on fourth-quarter nonfarm productivity, or the productivity gauge we watch, because the headline gauge relies on gross domestic product data that hasn’t been released yet. We’ll be watching closely for more details on productivity, as we believe increased productivity will be an important driver of future output growth and healthy (but manageable) inflationary pressures.
Monitoring the Week Ahead
- Nonfarm Productivity (Preliminary. QoQ, Q4 2018)
- Initial Jobless Claims (Feb. 2)
- Japan Leading Index (Preliminary, Dec)
- Japan Coincident Index (Preliminary, Dec)
- Bank of England Rate Decision
- Japan Current Account Balance (Dec)
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