Economic and Stock Market Commentary

The waters have turned choppy on Wall Street, with international brewing that may continue to affect our economy and financial markets. Thus, our market, which had set one record after another, has come under pressure recently.

There are reasons for the reversals. First, there’s the Federal Reserve, which had unnerved investors in July—even though it reduced interest rates—by voicing indecision about future rate action. Investors had sought assurances there would be a steady stream of reductions going forward. Then, there is the economy, which is giving off mixed signals, with strong consumer confidence and steady income gains, offset by slower manufacturing growth and uneven employment trends.

But the biggest thorn in Wall Street’s side is , with the President announcing plans to impose tariffs on virtually all of China’s exports. Such a move figures to depress investment spending and put added pressure on GDP. China, meantime, is retaliating, by allowing its currency to fall in order to stimulate exports. This tit-for-tat showed no signs of abating as we went to press. Also, unnerving were added declines in U.S. Treasury note and global bond yields, with these returns skidding on news that Germany’s industrial output had fallen sharply.

There also are reasons not to overreact. To wit, our economy is still enjoying modest, low-inflationary growth, and that should persist, despite these headwinds, with the strength in consumer confidence and healthy levels of household spending being key catalysts. Also, there is the Fed, its hesitation, is likely to continue cutting interest rates, especially if the new tariffs put downward pressure on global growth as seems likely. Finally, there is earnings season, which is ending on a decent note and should continue to be a modest counterweight as things stand now.

All in all, there is still a bullish case to be made, which suggests that the latest selling may be more of a short-term adjustment than a -term correction—unless global woes worsen significantly.

Conclusion: For now, we consider Wall Street’s recent stumbles to be an opportunity​ to get into stocks at more attractive levels.

Source: Valueline.com