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Tariffied

The major market indices finished the week lower following an uptick in trade related uncertainties between the US and China.

May 20, 2019    |    By Mike Schwager

Performance for Week Ending 5/17/2019:

The Dow Jones Industrial Average (Dow) dipped 0.69%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.94%, the Standard & Poor’s 500 Index (S&P 500) fell by 0.76% and the Nasdaq Composite Index (NASDAQ) shed 1.27%. Sector breadth was negative with 7 of the 11 S&P sector groups finishing lower. The Financials sector (-2.09%) was the worst performer followed by Industrials (-1.93%) and Consumer Discretionary (-1.14%).

Index* Closing Price 5/17/2019 Percentage Change for Week Ending 5/17/2019 Year-to-Date Percentage Change Through 5/17/2019
Dow 25764.00 -0.69% +10.44%
Wilshire 5000 29521.28 -0.94% +14.65%
S&P 500 2859.53 -0.76% +14.07%
NASDAQ 7816.29 -1.27% +17.80%

*See below for Index Definitions

 
MARKET OBSERVATIONS: 5/13/2019 – 5/17/2019

The major market indices finished the week lower following an uptick in trade related uncertainties between the US and China. The week got off to a very soft start with the S&P 500 plunging by 2.4% on Monday after China said it would hike tariffs on $60 billion worth of U.S. imports to 25% starting on June 1. The action followed the collapse of the recent trade talks in Washington and the US decision to increase tariffs on $200 billion in Chinese imports. China's Vice Premier Liu He, who attended the talks, said that while the negotiations hadn't broken down completely, there were "issues of principle" upon which China would not compromise.

With President Trump known to view the market’s performance as a barometer on his policy decisions, he tried to cushion the blow by telling reporters at a White House briefing that a meeting with Chinese President Xi Jinping at next month's G-20 summit in Japan would be "very fruitful," adding that "I have a feeling it's going to be very successful." Trump also described the dispute with China as "a little squabble" while Treasury Secretary Mnuchin told a Senate Appropriations subcommittee that he expects to travel soon to Beijing with U.S. Trade Representative Robert Lighthizer to resume negotiations.

The Chinese government's top diplomat, State Councilor Wang Yi, was also a bit more optimistic on the prospects of the U.S. and China reaching a trade deal. "We believe that as long as these negotiations are in line with China's general direction of reform...both countries' negotiating teams have the ability and wisdom to resolve each other's reasonable demands, and in the end reach a mutually beneficial, win-win agreement," according to Wang.

The modest thawing in trade tensions coupled with a batch of solid earnings and economic reports helped spark a mid-week rally that offset a good portion of the losses earlier in the week.

Fed to the Rescue? Amid the confusing landscape, traders have increased bets on the Federal Reserve cutting borrowing costs later this year. According to the Bloomberg World Interest Rate Probability function, the probability of a rate cut by the December FOMC meeting currently stands at nearly 75% (up from 53% on May 1). During the week Richmond Fed President Tom Barkin said that while he favors keeping interest rates on hold for now, he worries that business confidence is fragile amid slowing global growth and trade disputes. "There’s not a strong case to push rates higher when inflation is under control," Barkin said in a speech in New York. "There’s not a strong case to move lower when growth remains healthy."

Outlook: We maintain a bullish tilt towards the market and continue to believe there is money to be made over the coming quarters. While trade issues will likely result in some near-term headline risk, the solid macro environment should remain supportive and help cushion downside risk. Our view continues to be that as long as the economy and earnings continue to grow – which remains our base-case scenario—equity prices should ultimately follow suit.

The Week Ahead: First quarter earnings season will continue to wind down with 24 members of the S&P 500 scheduled to release results throughout the week. Reports of interest on the data calendar include; April existing home sales, April new home sales and April durable goods orders. Wednesday will bring the minutes from the most recent Federal Open Market Committee (FOMC) meeting. The Fed speaking calendar will be very busy with almost a dozen presentations scheduled throughout the week, including Fed Chairman Powell on Wednesday.

Definitions

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.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.




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