Well, 2018’s first quar­ter earn­ings sea­son is in the process of wind­ing down.  The first quar­ter of 2018 had con­sid­er­ably more noise with respect to earn­ings because of the new tax law changes.  How­ev­er, earn­ings are look­ing much bet­ter than expect­ed.

Dur­ing the quar­ter, investors cel­e­brat­ed the pas­sage of the Repub­li­can tax plan that low­ered the tax bur­den for U.S. cor­po­ra­tions and the S&P 500 index surged almost 8% over the next few weeks.  Giv­en pos­i­tive glob­al eco­nom­ic news, for­eign equi­ties soared as well.

How­ev­er, the mar­kets got a lit­tle chop­py upon the release of the Jan­u­ary employ­ment num­bers.  The key issue is wages are final­ly ris­ing, and more quick­ly than antic­i­pat­ed.  This stoked infla­tion fears and raised the like­li­hood the Fed may raise inter­est rates more quick­ly than antic­i­pat­ed.

Then, Pres­i­dent Trump imposed tar­iffs on solar pan­els and wash­ing machines.  In return, Chi­na threat­ened to impose their own sanc­tions.  It wasn’t until mid-quar­ter, when Trump imposed tar­iffs on Steel and Alu­minum, that they returned the favor, impos­ing their own tar­iffs on 128 U.S. prod­ucts.  With that… game on…market volatil­i­ty ratch­eted up and the neg­a­tive news ban­ners ensued.

Qui­et­ly rum­bling in the back­ground to all the head­line news, the Fed has start­ed to slow­ly reverse its stim­u­lus pro­gram.  They are rais­ing short-term rates and shrink­ing their bond port­fo­lio.  Both mea­sures have a tight­en­ing effect on the econ­o­my and the big fear is the net effect of doing this could kill eco­nom­ic growth.  At some point, the var­i­ous glob­al economies will also end their stim­u­lus pro­grams, poten­tial­ly lead­ing to the death of glob­al eco­nom­ic growth as well.

When you add it all up, the tar­iffs and the Fed tight­en­ing, the mar­kets got a lit­tle spooked and our much await­ed 10% cor­rec­tion final­ly arrived.  The net result, the S&P 500 index end­ed up approx­i­mate­ly where it start­ed … well, maybe a lit­tle south of where it start­ed.  As they say, the past is the past, the future remains uncer­tain.   The remain­der of the year may well be more volatile than what we have seen in the past few years.  Of key con­cern is the poten­tial for a trade war between the U.S. and Chi­na and how quick­ly infla­tion ris­es over the next sev­er­al months.

On Thurs­day, May 3rd, we will con­duct our quar­ter­ly Eco­nom­ic Update – Vir­tu­al Hap­py Hour.  The focus of this webi­nar is to review the over­all sta­tus of the U.S. and glob­al econ­o­my.  Whether you are a busi­ness own­er or an indi­vid­ual investor, join us to learn about how things have gone and where we see things head­ing.