Trade Jitters Continue

The major market indices finished the week moderately lower reflecting uncertainty surrounding trade tensions and the impact they may have on the broader economy.

July 02, 2018    |    By Mike Schwager

Performance for Week Ending 6/29/18:

The Dow Jones Industrial Average (Dow) lost 1.26%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 1.50%, the Standard & Poor’s 500 Index (S&P 500) closed off 1.33% and the Nasdaq Composite Index (NASDAQ) shed 2.37%. Sector breadth was mixed with 4 of the S&P sector groups finishing higher while 7 closed lower. The Utility sector (+2.25%) was the best performer while the Technology sector (-2.19%) was the worst.

Index* Closing Price 6/29/2018 Percentage Change for Week Ending 6/29/2018 Year-to-Date Percentage Change Through 6/29/2018
Dow 24271.41 -1.26% -1.81%
Wilshire 5000 28394.62 -1.50% +2.23%
S&P 500 2718.37 -1.33% +1.67%
NASDAQ 7510.30 -2.37% +8.79%

*See below for Index Definitions

MARKET OBSERVATIONS: 6/25/2018 – 6/29/2018

The major market indices finished the week moderately lower reflecting uncertainty surrounding trade tensions and the impact they may have on the broader economy. As noted in past editions of the Viewpoint, tariffs, per se, are not what worries the market, it’s the impact they can have on business confidence and the financial markets – both of which could prove much more costly.

This sentiment was echoed during the week by two members of the Federal Reserve who cautioned on the potential fallout from trade tensions. St. Louis Fed President James Bullard noted “I’m hearing full-throated angst” from his business contacts, with “all aspects of the economy… affected” and that “shows you how uncertainty over trade policy can feed back” into business decision making. Meanwhile, Atlanta Fed President Raphael Bostic said “there is so much concern in the business community…I’m hearing some very deep concerns.” The upcoming second quarter earnings season will be monitored very closely for clues on how trade tensions may impact second half results.

Q2 Recap: Last week marked the end of the second quarter. Despite the recent volatility, overall performance was solid with the Dow producing a total return of 1.26%, the S&P 500 gained 3.43%, and the Nasdaq Composite jumped by 6.61%. The small-cap Russell 2000, which tends to be more insulated from trade tensions, took top prize by gaining 7.75%. On the sector front, Energy soared by 13.48% reflecting the 14.41% gain in oil prices. Consumer Discretionary (+8.17%) and Technology (+7.09%) also produced strong gains. On the downside, the Industrials sector (-3.18%) was the biggest laggard followed by Financials (-3.16%) and Consumer Staples (-1.54%). International markets, reeling under the pressure of trade threats and weakening economic growth, posted moderate losses, with the MSCI Europe Index and MSCI Emerging Markets Index falling by 9.75% and 2.47%, respectively (in US dollar terms, total return).

Market View: While the level of ‘noise’ (tariffs, geopolitics, political uncertainty, etc.) in the marketplace remains elevated, when looking beyond the noise and focusing on the underlying fundamental drivers of equity markets, the macro environment remains supportive. The domestic economy is showing signs of upward momentum, the earnings outlook remains robust, inflation remains relatively tame and while the Fed will continue to gradually tighten monetary policy, interest rates will remain low by historical standards.

Historically bull markets continue until there are growing signs of recession. That is certainly not the case today. The yield curve remains positively sloped and the Leading Economic Indicators Index has been growing at a solid pace. As a firm, we are not forecasting a recession until early 2020. Investors tend to discount the arrival of recession by about seven months, on average, before it actually begins, suggesting the market still has room to advance but may begin to face some headwinds around mid/late next year.

The Week Ahead: Despite it being a holiday shortened week, the data calendar will not be taking a vacation. Reports of interest during the coming week include; the June Purchasing Managers’ Manufacturing Index (PMI), the June Institute for Supply Management (ISM) manufacturing index, May construction spending, May factory orders, June vehicle sales, the June ADP employment report, the June ISM non-manufacturing index, and the June Payroll report. The earnings calendar will be nonexistent with no members of the S&P 500 index scheduled to report. Other notable events include Friday’s deadline for the US to release a list of imposed tariffs on imported Chinese goods and Thursday’s release of the meeting minutes from the June 13 Federal Open Market Committee meeting.


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.

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