Fed’s dovish stance
The markets have been cautious since the Fed’s two-day policy meeting ended on March 20. The Fed signaled no rate hike in 2019 and an end to balance sheet reduction. The Fed provided a dovish message to the markets. The Fed’s stance came despite any significant deterioration in the US (SPY) (VTI) economic outlook in the last few months. The markets have become very sensitive to any news that confirms a global slowdown.
Gold prices (GLD) have been supported by the Fed’s dovish shift. Higher interest rates increase the opportunity cost and reduce the appeal.
US-China trade talks
Currently, the markets have many concerns. In addition to weak European data, the ongoing trade talks between the US (DIA) and China (FXI) are adding to the uncertainty. As we highlighted in Trump’s at It Again: Markets Spooked by Tariff Warning, President Trump said, “We’re not talking about removing them. We’re talking about leaving them and for a substantial period of time because we have to make sure that if we do the deal with China, China lives by the deal.”
In addition to the Fed’s dovish turn, the optimism about a trade deal has been a major reason for markets’ rally year-to-date. Following President Trump’s remarks about China and the tariffs, the markets fell. Due to the uncertainty, businesses have also been shying away from big-ticket investments. China might not agree on a deal, which would retain the tariffs on its products. A complete breakdown of the US-China trade talks could be catastrophic for the markets.
US companies and China’s slowdown
Many companies including FedEx (FDX), BMW (BAMXF), and UBS have been warning about the slowing global economy. US companies including Apple (AAPL) and NVIDIA (NVDA) have warned that China’s slowdown is hurting their earnings. Advanced Micro Devices (AMD), Micron (MU), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOG) have also been impacted by trade tensions.