The second quarter of 2019 began with solid gains in the stock market. Investors are acting as if they expect the Federal Reserve to refrain from any interest rate increases for the rest of this year and that is the consensus among analysts. In fact, some are talking about a possible rate decrease if inflation remains tame.
On the first Friday in April the March employment report was released and 196,000 new jobs were added. On May 3rd the April report was released and 263,000 jobs were created in April. Both of these reports exceeded expectations by a wide margin fueling the uptrend in the stock market.
The unemployment rate dropped solidly below 4% in March and on May 3rd the rate was pegged at 3.6%, the lowest level of this economic recovery. Hourly earnings continue to increase with a gain over the last twelve months of 3.2%.
Towards the end of April the first quarter Gross Domestic Product (GDP) report was released. Estimates which preceded the report were under 2%, so when the numbers came in at a robust 3.2% that was a pleasant surprise and more reason for investors to push the market higher.
The recovery from the fourth quarter market decline has been swift and after four months, 2019 is on strong footing. With the great economic reports so far this year, what could derail this strong showing in the coming months?
Interest rates are expected to be stable for the rest of the year, so the elephant in the room is the China trade talks. There must be real and significant progress for both countries. On April 30th CNBC reported that White House chief of staff, Mick Mulvaney, said the U. S. should know in about two weeks whether or not a successful trade agreement can be reached with China. The U. S. is intent on an agreement that will address the trade deficit, intellectual property theft, and forced technology transfers. Investors are watching this unfold and hoping for a resolution sooner rather than later.
There are also possible headwinds from the lack of a plan for the UK to exit the European Union. Brexit continues to bring uncertainty. It has been nearly three years since the surprising results of the referendum that determined the UK would leave the EU. The exit was to take place on March 29, 2019 but the prime minister’s withdrawal deal was not approved by Parliament. It is back to the drawing board while the world waits for a decision. The EU has agreed to a new deadline of October 31st. It could happen sooner if Parliament will agree to the Prime Minister’s plan.
The strong economy appears to be the focus of investors as the market continues its uptrend in 2019.