May 04, 2017

Tug of War illustrationThe Oxford English Dictionary defines "tug of war” as “the decisive contest; the real struggle or tussle; a severe contest for supremacy.” Within the world of economics and investing, there is a seemingly less dramatic application of the term, yet the consequences of which side is winning can have dramatic consequences for markets. Quincy Krosby, Prudential’s markets strategist, describes the current economic tug of war in her 2Q 2017 commentary.

Krosby writes that as we prepare to enter the third quarter of 2017, the "push" is toward strong global growth as Eurozone earnings reports pick up, China data trends higher, Japan’s economy improves and U.S. corporate profits begin to climb. 

Meanwhile, a litany of worries contributes to the "pull," in the market. There’s enough for the market to fret about--from a stalling U.S. economy, to rising auto loan delinquencies and slowing vehicle sales, along with North Korea’s escapades and a potential armed conflict with Syria. And just like a bad movie, Krosby writes, people can’t stop watching the drama that is Washington, D.C., which has become the “uber” obsession for market participants in the U.S. and around the world.

The market “tug of war” seems at times to reflect the intense political battle ongoing in the U.S. Capitol. The economic data calendar, an incessant parade of Federal Reserve speakers, and the release of earnings and guidance should help keep the market’s attention on something other than the ongoing political sausage making. Market valuations, however, do need to see the president pivot successfully toward tax reform and demonstrate that he can deliver the legislation. This would not just be a win for markets, but also for the country at large.

To read the full outlook, click here. Want to speak with Quincy Krosby about what’s happening in the markets? Please contact Lisa Bennett at 973-802-2894.