Investment Commentary – February 26, 2019

Year to Date Market Indices as of Market Close February 26, 2019
Dow 26,057 (8.99%)
S&P 2,793 (9.49%)
NASDAQ 7,524 (11.75%)
Gold $1,324 (1.79%)
OIL $53.34 (15.55)
Barclay Bond Aggregate (1.08%)
Fed Funds Rate 2.50% (last increase was 12/19/18)

What’s driving the market?

Wall Street was watching developments between India and Pakistan, amid reports the Pakistani military shot down two Indian jets that had entered its airspace over the contested region of Kashmir, and arrested one Indian pilot. The developments came a day after India bombed what it said was a terrorist training camp in Pakistan, the first cross-border attack over cease-fire lines in almost 50 years, according to reports.

Those events come as investors have been closely watching Britain’s tumultuous exit from the European Union, with a March 29 deadline looming. British Prime Minister Theresa May on Tuesday said she would look to delay Brexit if a departure deal isn’t agreed upon, as a number of votes on her plans to exit from Europe’s trading bloc are on deck in coming weeks. However, Wall Street appears to be less fearful that a disorderly no-deal Brexit will occur, where the country leaves the EU without a trade deal in place.

Looking ahead, Fed boss Jerome Powell is set to testify in front of the House, a day after he affirmed the central bank’s wait-and-see approach to rate increases, citing slower global growth and its effect on the U.S. Powell is scheduled to begin his testimony in front of the House Financial Services Committee on Wednesday at 10 a.m. Eastern Time.

Also in the spotlight in geopolitics was President Trump‘s high-stakes summit with North Korean leader Kim Jong Un in the Vietnamese capital of Hanoi.

Oppenheimer Analyst (Krishna Memani)Take: to examine the state of the global economy and financial markets in 2019 and beyond.

A Soft Landing for the U.S.: As U.S. growth converges with the rest of the world, the stage is set for international stocks to rally in 2019. Memani expects this to happen for two reasons: valuations in international markets are in a better position than they are in the U.S. and growth potential in the U.S. has slowed down. That said, the entire world is dealing with policy issues that could impact markets. The U.K. has Brexit, Italy has a debt crisis, and India has a central bank problem, to cite a few.

Slow Growth Environment: Places which experienced rapid growth, emerging markets, for example, have now seen growth level off. What’s more, the inflation picture around the world looks materially different. All that weighs on asset prices, according to Memani. But this doesn’t mean value stocks will come back into vogue. The current environment, with a modestly flat yield curve, continues to favor growth-oriented companies.

How Does the Cycle End?: “I think if we have a recession, it would be because of a policy mistake rather than an economic bubble bursting because growth ran rampant,” according to Memani. We don’t think that point is next year but much further in the future. Maybe three, four, or even five years from now.

How are other markets trading?

Asian markets closed mostly higher Wednesday, as the Nikkei 225 NIK, +0.50%and Shanghai Composite Index SHCOMP, +0.42% advanced. Hong Kong’s Hang Seng Index HSI, -0.05% however, shed 0.1% on the day.

European stocks were in retreat Wednesday, with the Stoxx Europe 600SXXP, -0.22% down 0.3%.

In commodities markets, the crude oil prices CLJ9, +2.00% were rising 2.1%. Gold prices GCJ9, -0.31% were retreating, while the dollar DXY, +0.03% also edged lower.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.