Volatility returned to the market in 1Q, driven in part by investor apprehension about escalating trade conflicts and weakening economic data. Corporations, however, expressed an optimistic view regarding prospects for the future. We below hight three key themes and the impact of rising input costs, and the risk of international trade frictions.
- Economic data: Executives remained upbeat about the economic environment, especially given the boost from tax reform. Corporate management expected relatively strong economic growth to continue through at least the end of 2018, driven in part by tax reform. While they acknowledged that a downturn is inevitable, the consensus among executives across sectors was that the economy still has room to run.
- Input costs: Managers cited rising wages, commodity prices, and logistics costs as potential headwinds to earnings. A tight labor market, uncertainty in the Middle East, and increased demand drove input costs higher in 1Q. In some cases, firms used hedges to reduce earnings risk.
- Trade conflict: Firms expressed optimism that trade conflict would be resolved.Commentary emphasized the support for a free trade environment. Company management did not expect the disputes would escalate and affect global economic growth.
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