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Economic Expansion? first published April 29

Updated: Jun 11, 2019

Continued signs of economic expansion in China, following surprisingly strong March data, are adding to views that the world’s second-largest economy is slowly regaining its footing after growth cooled to a near 30-year low last year.

“Generally speaking, given higher total social financing in the first quarter, coupled with faster fiscal spending for infrastructure projects, the stabilizing trend in the economy is set to continue,” said Nie Wen, economist at Hwabao Trust, who forecast China’s Purchasing Managers Index (PMI) would rise to 50.8.

However, if investors are to look to China for signs of economic strength—or a lack thereof—this could be an interesting week.  We’ll see China’s PMI data on Wednesday, and President Donald Trump said on Thursday that he would soon host Chinese leader Xi Jinping at the White House as they plod toward a possible agreement on trade between the world’s two largest economies.  U.S. Treasury Secretary Mnuchin told the New York Times that negotiations are in “the final laps” as he and U.S. Trade Representative Robert Lighthizer prepare to fly to Beijing this week for more talks. 

While we’ll get a domestic unemployment update this Friday, it’s likely for a whole variety of reasons that this week’s Fed policy meeting will be a big ol’ nothing burger, and China seems likely to be the news driver for investors looking for signs of slowdown in the global economy. 

We continue to believe we’re in a period of economic expansion, albeit at a slower pace than in previous years.  For us, that means to overweight stocks, but large-cap growth stocks are already up 22% year to date [i]--  some reversion to the mean seems likely over the next month or two.

We are both confident in the continued global expansion and cautiously optimistic of late-cycle conditions.  We believe that macroeconomic fundamentals and the evolving market environment will remain supportive of risk assets.  However, we continue to stay focused on a commitment to risk management and strategic portfolio design.  Consequently, we would emphasize revisiting the balance between growth and value style weights and utilizing alternatives to manage a potentially more volatile period over the near term.

[i] Bloomberg, Barclays and Goldman Sachs Asset Management (as of 04/26/19)

* The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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