NEWS
What Happened Last Week
According to a new Gallup poll, Americans are the most optimistic they’ve been in the past seven years about economic growth, stock market growth, interest rate drops and slowing inflation.
This year, 8% of companies have lowered future performance estimates, while 5% have raised them.
The US economy added 143,000 jobs in January, just below expectations.
Unemployment improved by falling to 4% (an eight-month low) while wage growth remained healthy.
November and December’s job gains were revised significantly upward, which led to Treasury interest rates climbing higher.
Proposed tariffs on Canada and Mexico have been postponed due to each respective country’s declared willingness to make a concerted effort against the flow of fentanyl and illegal border crossings.
How I See It
Remember the utter pessimism that reigned supreme in 2022?
That pessimism is long gone. And if anyone had sold out of the markets in October 2022 when things looked bleak, they would have missed out on 46% positive upside since then.
Pessimism is a good thing for markets. Optimism can be a good thing too, but only what I’ll call vigilant optimism. A sort of optimism that stays cautious and doesn’t overlook negative developing trends.
Optimism can continue on for years. And it often drives some of the stock markets best returns.
What I like to see is that companies are setting lower expectations. Lower expectations give room for positive surprise. Markets move on the difference between expectations and reality.
Other positive developments include the healthy continuation of the jobs market, expectations of higher interest rates for longer, and the possible avoidance of tariffs with our neighbors.
Here are a few reasons why I think markets will end the year positive: declining uncertainty, fewer tariffs than expected, lower impact of tariffs than expected, and a loosened regulatory environment which drives faster innovation.
That said, the first two years of a President’s term have historically been the most likely for bear markets to develop. There are reasons for that, mainly due to the fact that they usually have greater potential to effect dramatic changes during those initial years.
The myriad changes happening presently are difficult to calculate in their combined outcomes, but the present optimism among small businesses and US residents seems to indicate a shared belief that the streamlining of American government and business is likely to pay off, in the end.