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Futures Down: Is It Facebook or Chinese Tariffs?

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Thursday, March 22, 2018

Market futures are lower before the opening bell this Thursday, even as investors got pretty much what they’d been expecting/hoping for: a mere quarter-point interest rate hike yesterday (to a range of 1.50-1.75%), as well as an inference the Fed will raise rates only another 2 times this year, not an additional 3, as many market participants had been wary of.

The Fed did raise its forecast for future funds rate in 2019, averaging out to around a 3% rate overall in 2019; the high side of those members of the Federal Open Market Committee (FOMC) are looking for more like a 3.5% rate for next year. They also look for a multi-decade-low 3.6% Unemployment Rate, and have yet to announce they see real wage inflation. All in all, this is still pretty Goldilocks — especially considering this was Jay Powell’s inaugural FOMC meeting and press conference, where there was the added unknown of how the public would take Powell’s language.

Facebook’s (FB - Free Report) tough week continues. Even with CEO Mark Zuckerberg coming out yesterday to express his concerns and apologies regarding a breach of trust running up to the 2016 elections, shares of the social media giant are trading down another 2.7% in today’s pre-market. It would appear there is still a desire to increase transparency and/or regulation to track Facebook’s business dealings, and while this might prove healthy and safe for society as a whole — as well as Facebook’s long-term viability — costs and potential penalties may see near-term trades in the shares continue moving southward.

Today at 12:30pm ET, President Trump is expected to announce new tariffs on China, worth a reported $50 billion. While there are calls from all around the spectrum of U.S. industries that China is operating on a non-level playing field in terms of trade with our country, there are deep concerns that a broad-brush approach to Chinese tariffs might trigger a trade war with arguably our most important trading partner. Even some Republicans on Capitol Hill would like to see a narrowing of these proposed tariffs, as well as perhaps a trial period for enacting methods for leveling said playing field.

As the stock market is consistently understood as a forward economic indicator, we might see the continued downshift in equity indexes lately as a result of the questions these proposed tariffs raise. After all, a drop in share price for Facebook has nothing to do with an implied open on the Dow of -300 points. Again, clarity is key: once we can see through near-term gnarliness — whether in social media responsibility or tariff/trade war scenarios — we might better understand a clear path toward longer-term market gains.

Mark Vickery
Senior Editor

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