Sherlock Holmes, the archetypal detective of Victorian fiction, once solved a case by studying not what happened, but what didn’t.
While his focus was on a dog that failed to bark at an apparent intruder, the perspective is equally apt for evaluating the performance of U.S. financial markets this week: All three of the major indexes are in positive territory despite days of turmoil that stretched from Washington to London and beyond.
A fiery confrontation Tuesday between President Trump and Democratic congressional leaders in which the chief executive vowed to shut down parts of the government if he didn’t get sufficient funding for a long-promised border wall was only the start.
It was followed by the imposition of a prison sentence on Trump’s former attorney for charges including lying to Congress about a Trump Organization project, an attempt in the British Parliament to topple Prime Minister Theresa May’s government over her Brexit deal and the end of liquidity-boosting bond purchases by the European Central Bank.
While the Dow Jones Industrial Average did hiccough on Tuesday, its 0.2 percent drop was mild compared with a 3.1 percent slide a week earlier amid questions about a trade truce between Washington and Beijing, and the blue-chip index has still gained 0.9 percent this week. The broader S&P 500 has risen 0.7 percent over the past four trading days, and the tech-heavy Nasdaq has added 1.5 percent.
Despite a possible government shutdown bringing “a very messy end to 2018,” said Chris Krueger of the Cowen Washington Research Group, “we are still generally optimistic about the prospects for 2019 and a divided government.” While Trump’s divisive trade policies — including tariffs that businesses complain will push up costs — can continue with little congressional input, growth in defense spending should buoy contractors while banks benefit from the easing of regulations by Trump’s hand-picked team, Cowen predicted.
As for a shutdown, many government agencies are already funded through September 2019, so a suspension of nonessential services at the rest would have a smaller effect than closings during previous budget standoffs between Congress and the White House.
“I’ve done a good job on the economy,” Trump said Thursday in an interview with Harris Faulkner of Fox News, predicting that his base of political supporters will continue to stand by him. “I’ve done a very good job on foreign relations; we’re respected again. Nobody’s done what I’ve done and what this administration has done in the first two years.”
The president placed the blame for former attorney Michael Cohen’s criminal charges on Cohen himself, while maintaining that the lawyer had done nothing wrong with regard to Trump’s 2016 presidential campaign.
Cohen, who conceded in a guilty plea that he told Congress that Trump Organization talks about a project in Moscow ended much earlier in the campaign than they actually had, said Wednesday’s sentencing ended a “personal and mental incarceration” that began when he started working for Trump.
“Recently the president tweeted a statement calling me weak and it was correct but for a much different reason than he was implying,” Cohen added. “It was because time and time again I felt it was my duty to cover up his dirty deeds.”
Overseas, May’s survival of a no-confidence vote by her Conservative Party ensures she can remain its leader for another year, making Britain’s departure from the European Union with no trade deal in place less likely, according to wealth management firm DWS.
The agreement that May’s government negotiated with Brussels, however, remains unpopular, with criticism from both so-called Brexiteers, who wanted more favorable terms that the European Union refused, and Remainers, who fear the economic pain as well as the loss of strength and status that may follow the move.
The exit proposal, which allows for a so-called transition period through the end of 2020 during which London and Brussels would negotiate future trade arrangements with each other, would let Britain simultaneously strike trade deals with other nations — with the proviso that they not be implemented until the transition ends.
If May can’t secure further concessions from the European Union, she might try new agreements modeled on the pacts the trading bloc has with non-members such as Canada, Sweden, and Norway or even holding a second referendum on whether to leave the EU, the firm suggested. None of those options would be likely to meet the March 29 withdrawal date under current plans, however.
“Trade deals are complicated matters and tend to require lengthy negotiations,” DWS noted. “In the meantime, markets might have little reason to panic, but no reason to stop worrying about Brexit either.”
