The Dow’s pullback closely followed the strong recovery of the U.S. stock market in recent months, as strategists warned that stocks had become too expensive for retail investors.
But, with the U.S. economy in a strong position after recording a 3.2 percent growth rate in the first quarter of 2019 and the Federal Reserve reluctant to raise rates even amidst solid economic growth, the Dow should demonstrate considerable strength in the near-term.
Council of Economic Advisers Chairman Kevin Hassett, one of President Donald Trump’s top economists, said in an interview with the Wall Street Journal that U.S. economic growth was “really really strong” in the first quarter of 2019.
While many investors feared a slowdown in the U.S. economy and the rest of the global market, Hasset emphasized that there is a lot to be optimistic about in the upcoming months.
“A lot of people started the quarter thinking that there was some evidence of sharp slowing by the economy. There are a lot of things that are optimistic about the second quarter because the shutdown effect will be reversed.”
In response to the claims from skeptics that the Trump tax cut in 2018 failed to have a long-lasting effect on the U.S. economy, Hassett argued that it laid a strong foundation for the economy to grow at a stable rate.
“It confirms our view that the momentum from last year was not a sugar high but a serious response to long-run policies that have made the U.S. a more attractive place for business,” Hassett explained.
The tax cut, along with the Federal Reserve’s monetary policy, record-low unemployment, and bullish results from major financial institutions like BlackRock have led the U.S. economy for an optimistic start in 2019.
The gross domestic product (GDP) of the U.S. rose at 3.2 percent in the first quarter for the first time in four years, indicating that President Trump’s trade policies and jobs programs are working.
Speaking to CNBC, National Economic Council Director Larry Kudlow said:
“President Trump’s policies are rebuilding the economy, and actually, the prosperity cycle we’re in is gaining momentum, not losing it.”
Kudlow noted that the trade policies of the U.S. and tax cuts are rekindling production and investment in the U.S. economy.
The financial sector, led by companies such as BlackRock, is beating the expectations of analysts, and the technology industry has performed relatively well in the first quarter with Microsoft achieving a $1 trillion valuation.
The concern of investors in the U.S. equities in recent months has been the possibility of the Fed raising the benchmark interest rate as the U.S. economy rebounds.
But, several high-profile Fed officials have consistently said throughout the first quarter of 2019 that the growth rate of the U.S. economy in 2019 is unlikely to change the Fed’s current rate stance. According to the Wall Street Journal, Federal Reserve Bank of Dallas President Robert Kaplan said, “I don’t think inflation is running away from us.” He added that 2019 is likely to end with a 2 percent rate.
If the U.S.-China trade talks continue to move at the current pace with major hurdles like enforcement strategies being cleared, the stock market should continue to climb throughout the second quarter, launching the Dow to a new all-time high.
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Last modified: September 23, 2020 12:39 PM