Performance for Week Ending 4/6/18:
The Dow Jones Industrial Average (Dow) fell 0.71%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 1.32%, the Standard & Poor’s 500 Index (S&P 500) dipped 1.38% and the Nasdaq Composite Index (NASDAQ) shed 2.10%. Sector performance was negative with all 11 of the S&P sector groups finishing lower. The Technology sector (-2.29%) led the way lower followed by Industrials (-2.04%) and Healthcare (-1.68%).
||Closing Price 4/6/2018
||Percentage Change for Week Ending 4/6/2018
||Year-to-Date Percentage Change Through 4/6/2018
*See below for Index Definitions
MARKET OBSERVATIONS: 4/2/17 – 4/6/17
The major market indices finished the week mixed reflecting fears of a budding trade war with China, the weaker than expected monthly jobs report and a continuation of the recent selling pressure in the technology sector.
Jobs Report: The Labor Department reported that nonfarm payrolls expanded by a very disappointing 103K, well below the 185K expected by economists. According to the Labor Department poor weather conditions during the month had a modest impact on the data. The weather distortions were very evident in weather sensitive sectors like construction, which saw a big swing in hiring activity. Net revisions to the prior two months data also subtracted 50K less jobs than originally reported. Despite the disappointing report, job growth has averaged a very solid 202K over the past three months, suggesting a healthy underlying trend to employment activity.
Trade War Worries: After announcing tariffs on imported steel and aluminum a few weeks ago, President Trump took aim at China by imposing tariffs on $50 billion of Chinese imports. China followed through on their retaliation warning by announcing an equal $50 billion of tariffs on US imports. While the tit for tat response raised fears of a looming trade war, nerves were somewhat calmed after several members of the Trump administration stated that the tariff proposals by both the US and China should be viewed as an “opening bid” in what will likely be a drawn out negotiating process.
The calm proved short lived after President Trump said he was considering imposing tariffs on an additional $100 billion of imports from China. In turn, China responded saying it would counter Trump's proposed new tariffs "to the end, and at any cost," and that it doesn't "want to fight, but we are not afraid to fight a trade war." According to Bloomberg data, China doesn't import enough U.S. goods to match Trump escalation, but it could take steps against American companies with Chinese operations or even restrict Chinese tourism to the United States. China could also take the so-called “nuclear option” by selling some of their $1.17 trillion in U.S. Treasury securities (which would likely result in upward pressure on US interest rates, and in turn, become a headwind to economic growth), although a Chinese official said that option is not being considered (at least not yet).
“Art of the Deal?” While the likelihood of a full blown trade war coming to fruition still seems unlikely (although the probability is certainly rising), the ongoing rhetoric from both sides could prove to be a near-term headwind for the market. At the end of the day, no one wins in a trade war. It is also worth noting that while tariffs were announced, neither side offered an implementation date of when they would begin. This may suggest that both sides would rather find some middle ground before entering into what will likely prove to be a lose/lose battle. If there is follow through, the direct economic impact of tariffs is relatively small ($150 Billion on a $20 Trillion economy), however, the impact on financial markets and business sentiment could prove much more costly – stay tuned.
Technical Take: Market technicals were also in play during the week as the S&P 500 managed to move back above its 200 day moving average. Traders watch the “200” closely as it is viewed as a longer-term trend line for the market. According to a Technical update on Bloomberg, a break below the 200-day (as was the case early in the week) often proves to be a Buy signal. The update points out that there have been 85 crosses of the S&P 500 Index beneath its 200-day moving average in the last 25 years (including last week), and the majority of the time, it's a buy signal for stocks. The average return 20 days after a cross is 2.06%, with stocks higher 68% of the time, while 60 days later the index is on average 4.38% higher, with stocks rising on 71% of such occasions. (As always, past performance is no guarantee of future results).
Market View: Despite the recent “potholes” the road ahead should still have an upward bias. When moving beyond the political ‘noise,’ the macro environment still remains supportive of equities based on; synchronized global growth, robust earnings growth, no signs of recessionary pressures and expectations the Fed will maintain its gradual approach in hiking interest rates. While the recent choppiness in the market has rattled the nerves of investors and additional selling pressure certainly cannot be ruled out, assuming that macro fundamentals remain stable, market weakness would be viewed as an opportunity to add equity exposure to portfolios, especially for investors with a longer time horizon.
The Week Ahead: First-quarter earnings season will kick off in earnest this week with seven members of the S&P 500 scheduled to release results, including a handful of bellwether financial and banking companies. Inflation will be the focal point of this week’s data calendar with March Producer Price Index (PPI) released on Tuesday followed by the March Consumer Price Index (CPI) on Wednesday. Other reports of interest include March import and export prices, the University of Michigan’s April consumer sentiment survey and February JOLTS report. In addition, the minutes from the March Federal Open Market Committee (FOMC) meeting will be release on Wednesday. Five Fed Heads are set to speak during the week. Their commentary will be monitored very closely for hints on the future path of monetary policy in light of trade tensions and the weaker than expected March payroll report.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.
The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.
The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.
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