Weekly Market Commentary

Weekly Market Commentary

The Markets

Surprise! It was a great week for markets.

Since the U.S.-China trade conflict resumed in early May, investors have been off balance. The possibility of escalating tariffs on Mexico heightened economic uncertainty. Then, last week’s unemployment report arrived with less than stellar news – just 75,000 jobs were created in May. The number was well below expectations. The Bureau of Labor Statistics revised March and April employment numbers downward, too.1, 2, 3

 

We know investors hate uncertainty. So, why did major U.S. indices rally?

The answer may be hope. There was hope negotiations with Mexico would produce results and tariffs would be avoided. There was hope trade issues with China, in tandem with less-than-stellar economic news, would encourage the Federal Reserve to cut rates. There was hope lower rates would stimulate the economy and lift share prices higher.

Weekly Market Commentary

The Markets

U.S. stocks have had a great run.

During the past decade, the profitability of U.S. companies increased rapidly. Strong corporate earnings helped the U.S. stock market outperform markets in other nations by a significant margin. According to Capital Economics, “Since the start of this decade, the average annual return from the MSCI USA index of mid- and large-capitalization U.S. equities, which closely tracks the S&P 500, has been roughly 13 percent. This compares to only 7 percent from the MSCI World ex USA index of comparably-sized equities in 22 other developed economies.” Performance was measured in local currency.

Through the end of April, year-to-date returns for U.S. benchmark indices were soaring. T. Rowe Price reported, “Stocks recorded solid gains in April, continuing their strong start to the year. The S&P 500 and Nasdaq Composite Indexes hit new all‑time highs at the end of the month, while the other major benchmarks remained modestly below the peaks they established in the fall of 2018…Renewed confidence in the global economy seemed to be a primary factor boosting sentiment in April.”

Weekly Market Commentary

The Markets

Trade war trade-off.

There was some good news on trade, last week. The United States took steps to reduce trade friction with the European Union, Canada, Mexico, and Japan.

“The United States on Friday reached an agreement with Canada and Mexico to remove steel and aluminum tariffs, which had been a persistent source of friction across North America over the past year. The deal on metals came as Mr. Trump decided not to press ahead immediately with levies on EU and Japanese automotive products – despite declaring that foreign car and vehicle imports represented a threat to U.S. national security,” reported James Politi, Jude Webber, and Jim Brunsden of Financial Times.

Weekly Market Commentary

The Markets

Trade talk trouble took a toll last week.

Major U.S. stock indices moved lower when trade talks between the United States and China broke down. The Standard & Poor’s (S&P) 500 Index, Nasdaq Composite, and Dow Jones Industrial Index all finished the week down between 2 percent and 3 percent, reported Ben Levisohn of Barron’s.

Despite the weak weekly performance, the S&P 500 remains up 14.9 percent year-to-date.

The deadline to settle U.S.-China trade issues was Friday. When it passed without any resolution, the U.S. increased tariffs on Chinese goods to 25 percent, reported the BBC.

Weekly Market Commentary

Weekly Market Commenatry

The Standard & Poor’s 500 Index is off to its best start in 20 years.

Despite the exceptional performance of U.S. stock markets year-to-date, and data that suggest economic growth remains steady, some analysts and investors have been pecking at Federal Reserve Chair Jerome Powell. They’re keen for the Fed to implement a rate cut, which could stimulate economic growth and help push stock markets higher, because inflation is lower than ideal, reported Howard Schneider and Ann Saphir of Reuters.

Recent data suggest core inflation is at 1.6 percent. That’s below the Fed’s target rate of 2 percent. Fed leaders have said they think low inflation may be temporary. Until a trend has been established to their satisfaction, they intend to do nothing. The Reuters article explained, “…preemptive…rate moves in either direction appear off the table for now, absent some unexpected event that raises new risks or shocks the economy into a higher or lower gear.”