Last week's meeting between President Trump and Chinese President Xi helped to reduce the chances of a potential trade war. China agreed to give the U.S. better access for financial sector investments and beef exports. Many other small trade deals like this are expected in the next 100 days. This should help the trade imbalance, but it won't completely reverse it. The meeting, however, was overshadowed by the U.S. airstrike on Syria in response to their use of chemical weapons. This military action had no significant impact on financial markets.
Meanwhile, the Federal Reserve, our nation’s central bank, managed to surprise markets with the release of the minutes from their March meeting. The minutes stated that most Federal Reserve members believed it would be appropriate to begin reducing the “balance sheet” later this year, an idea that had previously been downplayed in their official statement and at the press conference following the March meeting. A quick refresher: during the financial crisis, the Federal Reserve grew their balance sheet from about $900 billion to $4.5 trillion by buying treasury and mortgage bonds (this was known as quantitative easing, or “QE”). They did this to keep interest rates low in order to encourage lending and economic growth.
If the Federal Reserve decides to decrease the balance sheet to $3.5 trillion, that's equivalent to approximately 1.0% in interest rate hikes. Therefore, this announcement makes it more likely the Federal Reserve raises interest rates two more times in 2017 because if there is an economic or stock market scare, the Federal Reserve could easily push back the timing surrounding the reduction.
The March jobs report released last week was disappointing, as only 98,000 jobs were added versus the 180,000 expected. However, it appears this is a one-off event because of Winter Storm Sella’s impact on northeastern states. On a positive note, the unemployment rate dropped to 4.5% from 4.7%, which is near a 10-year low.
This week's economic calendar includes JOLTS (Job Openings and Labor Turnover Survey) and retail sales (how much you’re spending at stores). Corporate earnings season for the first three months of 2017 also gets under way with Delta, PNC, JP Morgan, Wells Fargo, and Citigroup reporting.
The Simply Money Point
Now that we have a better idea of the Federal Reserve’s intentions, Wall Street will turn its attention to corporate earnings season. It's expected that overall earnings grew at a solid rate of about 12% on average, which should benefit the stock portion of your investments.