Towards the end of 2018, most analysts looked bearish on the global economy as well as financial markets. The pessimism wasn’t totally unfounded. The tax-cut-fueled stimulus was fast fading in the United States, while the Chinese economy looked headed for a hard landing. The Federal Reserve also spooked markets by raising rates four times last year. The US-China trade spat also negatively impacted sentiments, and we saw cutbacks in businesses investment plans.
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However, 2019 is turning out to be the exact opposite of what most observers forecast last year. US equity markets have rebounded, and the S&P 500 (SPY) and NASDAQ Composite (QQQ) have gained 15.9% and 20.5%, respectively, year-to-date. Commodities have also looked strong, as risk appetite has improved amid reasonably strong economic data.
While US first-quarter manufacturing output disappointed markets, some of the recent data points like employment figures, export data, and March retail sales have been better than expected, prompting analysts to raise their first-quarter GDP forecast. CNBC reported that “Economists surveyed by CNBC/Moody’s Analytics Rapid Update raised their growth estimates by 0.3 percentage points to a median 2.4%” It added, “Their median forecast was under 2% just several days ago and was at a low of 1% earlier in the quarter.”
While the US economy has looked strong, China’s economic indicators have been resilient too. Earlier this year, Apple (AAPL), NVIDIA (NVDA), and Caterpillar (CAT) had warned that China’s slowdown was hurting their earnings.