What’s on Tap: Investors Override Brexit Concerns

Investors Override Brexit Concerns.png
  • Global Growth Is Officially Sluggish as WTO Downgrades 2019 Forecast 

  • Brexit Uncertainty Continues, European Recession Increasingly Probable

  • U.S. Economic Data Remains Positive: Strong Jobs at Home 

  • Financial Planning Friday: Health Savings Accounts

  • Looking Ahead to Earnings, Fed Minutes and More

Stock and bond traders remained focused on economic data this past week—and as today’s jobs report shows, the U.S. economy’s slow-growth trajectory is intact. But the lingering uncertainty about slackening global growth, U.S.-China trade talks and the Brexit kerfuffle could become more significant hurdles down 2019’s road. 

For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 Index have gained 13.8% and 15.5%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 12.1%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has dropped to 3.01% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 2.5% for the year.

Global Growth Is Officially Sluggish as WTO Downgrades 2019 Forecast 

On Tuesday, the World Trade Organization downgraded its forecast for 2019 global growth from 3.7% to 2.6%. An assessment of the potential negative impacts of a trade war between the U.S. and China was behind the lowered estimate.

The WTO’s view may be outdated, however. Optimism that a trade deal between the two super-economies will not only be achieved, but may be reached soon, is rising. While the harder work—designing enforcement mechanisms for intellectual property rights, for example—is unlikely to be signed, sealed and delivered in the first iteration of any deal, averting a trade war may be enough to support more gains in the market, especially if existing tariffs are reduced or repealed.

Brexit Uncertainty Continues, European Recession Increasingly Probable

We’ve lost track of how many acts the Brexit drama has played through on the world stage. In an effort to secure yet another extension from the European Union, the Brits voted to disallow a no-deal Brexit. But time is running out and the path to the U.K.’s exit from the E.U. remains littered with landmines.

We won’t speculate on when, let alone how, a deal unfolds—we’ll find out soon enough. Brexit uncertainty has already had a negative impact on economic growth. If companies don’t know the rules governing how they can operate, it makes it difficult to invest for the future. Instead of investing, we are hearing tales of U.K. companies stockpiling goods because they are worried that their supply chains, which span across Europe and the globe, will be broken. 

Combine Brexit uncertainty with weak manufacturing data out of Germany (the E.U.’s biggest member economy) and Europe has, in our view, the highest probability of stumbling into a recession in 2019 and 2020, relative to the U.S. and to China.

U.S. Economic Data Remains Positive: Strong Jobs at Home 

By contrast, the data on the U.S. economy was largely positive this week. 

The Department of Labor reported Friday morning that employment increased by 196,000 jobs in March and the 3.8% unemployment rate was unchanged. Claims for jobless benefits dropped to their lowest level in 49 years. And that’s against the backdrop of an economy and workforce that is larger today than it’s ever been.

The fully employed U.S. consumer continues to drive economic activity. While reports on durable goods orders as well as car and retail sales earlier in the week were somewhat weaker than expected, we believe that so long as the U.S. consumer is working, they’ll remain in solid spending shape and will keep the economic expansion on course. 

Manufacturing activity was better than expected last month. Combined with an uptick in construction spending, this tells us that the U.S. economy’s slow-growth train isn’t yet coming off the rails.

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Financial Planning Friday

Health Savings Accounts

Health savings accounts, or HSAs, can enhance a wealth management strategy as a tax-advantaged account for saving for medical expenses.  

To use an HSA, you must be enrolled in a high-deductible health plan—one with a deductible of at least $1,350 for an individual or $2,700 for a family. Most employers who offer high-deductible health care plans include access to an HSA as part of their benefits package. But whether they do or not, anyone enrolled in a high-deductible plan can set up an HSA for themselves. (Freelancers and other self-employed individuals who pay for their own health insurance are likely to qualify, for example.)  

The money you contribute to an HSA can be accessed at any time without penalty—if it is used for qualified medical expenses. For 2019, an individual can contribute up to $3,500 to their HSA. If your insurance covers your family as well, you can contribute as much as $7,000. 

One important thing to note—don’t confuse an HSA with a Flex Spending Account, or FSA. There’s a key difference between the two: Money you’ve set aside in an FSA is use-it-or-lose-it, with the balance expiring at the end of the year. By contrast, your HSA balance rolls over from year to year and from employer to employer, allowing it to continue growing in years when you don’t use or need it.

From a tax perspective, HSAs are in a league of their own. Funds you contribute are tax-deductible (like a traditional IRA), grow tax-free like any retirement account and can be withdrawn tax-free (like a Roth IRA) if those withdrawals are used for qualified medical expenses. Taken all together, this means that HSAs have the potential to be triple-tax advantaged.

If you are enrolled in an HSA currently, consider this your reminder that it’s not too late to contribute under 2018 limits. You have until April 15 to do so.  

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Looking Ahead to Earnings, Fed Minutes and More

Next week, first-quarter earnings season begins in earnest, with reports due from JPMorgan Chase and Wells Fargo on Friday. While we’ll be watching earning reports and company leaders’ outlooks very closely, we’re also on the lookout for data on factory orders, job openings, inflation and consumer sentiment as well as the minutes from the Federal Reserve’s March meeting. 

If you’d like to learn more about our tactical or fundamental investment strategies, please contact Steve Johnson at 844-587-7393 or info@bravercapital.com

Please note: This update was prepared on Friday, April 5, 2019, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. 

Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. 

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be seen as a recommendation to buy, sell or hold any of them.

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