Market Insights

The U.S. economy has been resilient, but recent events have raised worries about a slowdown. Let’s review some of the new forces at work.

The first potential concern is that two leading indicators have worsened sharply in the last two weeks: initial jobless claims and rail traffic. Initial jobless claims spiked much more than expected today and last Thursday. This is one of the most closely watched reports.

Rail traffic gets less attention but also gives a sense of business conditions. Do you know it cratered 9.1 percent last week — its biggest drop two years? That followed a 4.1 percent slowdown the previous week.

Of course, the recent government shutdown probably explains some of the weakness. But if they continue, we might be looking at a weaker backdrop than conditions in 2018.

Next, there’s been a wave of dovishness from central bankers around the world:

• On Tuesday, the Reserve Bank of Australia changed course by saying its next move could be to cut interest rates.
• Janet Yellen, former chair of the Federal Reserve, told CNBC on Wednesday the next move in the U.S. may be toward easing.
• This morning, the Reserve Bank of India unexpectedly cut interest rates.
• Later in the day, Robert Kaplan of the Dallas Fed said the U.S. could be “well served if we paused here.”
• Remember, all these developments come after the Fed dropped any mention of higher rates back on January 30. This is part of a quick 180-degree turn by policymakers who were committed to rate hikes barely three months ago.

The big worry continues to be uncertainty about big geopolitical events. Washington and Beijing are still trying to renegotiate hundreds of billions of dollars in trade before tariffs spike on March 1. White House adviser Larry Kudlow said today “sizable” differences remain between the two countries.

S&P 500, with 50- and 100-day moving averages.

Meanwhile, the U.K. and European Union remain deadlocked over the state of Brexit. Here are some other bearish headlines across the Atlantic:

• Yesterday Euro Zone officials reported that retail sales had their worst drop in December (-1.6 percent) since 2011. German manufacturing orders unexpectedly shrank as well.
• Today, economists in Frankfurt and London cut economic-growth numbers for 2019. German industrial production also fell despite forecasters predicting a gain.

Readers will notice that a lot of the negatives result from political paralysis. Will the worst-case scenario play out, or will business return to normal? No one knows, so business leaders seem to be taking a step back.

And now, the market seems to be following suit. Stocks have rebounded sharply from the fourth quarter’s rout and a big chunk of earnings season has passed. The questions now facing investors are whether all the good news has been priced in for now, and whether it’s time to be cautious until we get more clarity on the geopolitical issues?