Trade Worries Move Back to the Front Burner

The major market indices finished lower for a second straight week reflecting increased trade tensions and the threat of a currency war with China.

August 12, 2019    |    By Mike Schwager

Performance for Week Ending 8/9/2019:

The Dow Jones Industrial Average (Dow) lost 0.75%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 0.56%, the Standard & Poor’s 500 Index (S&P 500) dipped 0.46% and the Nasdaq Composite Index (NASDAQ) shed 0.56%. Sector breadth was negative with 6 of the 11 S&P sector groups finishing lower. The Energy sector (-2.22%) was the worst performer followed by Financials (-1.67%) and Technology (-0.81%).

Index* Closing Price 8/9/2019 Percentage Change for Week Ending 8/9/2019 Year-to-Date Percentage Change Through 8/9/2019
Dow 26287.44 -0.75% +12.69%
Wilshire 5000 29951.11 -0.56% +16.30%
S&P 500 2918.65 -0.46% +16.43%
NASDAQ 7959.14 -0.56% +19.95%

*See below for Index Definitions

MARKET OBSERVATIONS: 8/5/2019 – 8/9/2019

The major market indices finished lower for a second straight week reflecting increased trade tensions and the threat of a currency war with China. Trading was very choppy during the week with the S&P 500 posting the biggest daily percentage loss (-2.98%) so far this year, followed by the second largest year-to-date gain (+1.88%). Recall that President Trump recently announced the US would impose a 10% tariff on the remaining $300 billion of Chinese imports not already being taxed, starting on September 1. China responded by allowing its currency to weaken and instructed state owned companies to suspend imports of US agriculture products. The tit for tat continued with the US formally labeling China a ‘currency manipulator.

China exports about 3-times as much goods to the US than they import, meaning that the imposition of tariffs has a much larger impact. Their allowance to let the Chinese yuan weaken, ultimately makes exports to the US cheaper, and therefore has the impact of lessening the blow of higher tariffs. The manipulator labeling is more of a symbolic gesture, however, it seems to provide the US with political cover to put in place additional tariffs down the road.

The whole episode created increased uncertainty in the market place and is likely to continue to weigh on both business and investor sentiment for the foreseeable future. August is typically a time when many Wall Street investors are out of the office for summer holidays, which in turn, leads to reduced liquidity and ultimately higher volatility. Therefore, investors should be alert to the potential for additional headline risk surrounding the trade situation and whippy trading activity in the weeks ahead as a result.

Q2 Earnings Season: Earnings season continues to wind down with overall results tracking at a better than feared pace. Through Friday, 450 members of the S&P 500 have reported earnings with 76 percent beating forecasted earnings. Earnings growth has been on the weaker side (aggregate growth is up 2.35 percent), but still better than the estimated 2.6 percent decline forecast by FactSet Research at the start of the quarter.

Contrarians Take Note: The most recent survey from the America Association of Individual Investors (AAII) showed bearish investors account for over 48% of those polled, the highest level this year and just shy of the 50.3% reading that coincided with the market’s trough reached in late-December. Investing, in its simplest form, is about emotions – fear & greed. These emotions also tend to be contrarian in nature, meaning investors tend to be the greediest (Bullish) at/near market tops and the most fearful (Bearish) at/near market bottoms. While the current level of bearishness could certainly continue to climb, similar readings to the current level have often coincided with an easing of selling pressure.

Market View: In light of the still solid year-to-date gains, the ongoing uncertainty surrounding the trade spat with China, and signs the global economy is slowing, we have tempered our near-term outlook for risk assets. We are not bearish on the equity market, but with the S&P 500 recently reaching a new all-time high, the overall risk/reward outlook has now become less compelling. In the near-term, market price seems to have outdistanced underlying fundamentals as the year-to-date gains have resulted solely from the expansion in the market’s valuation multiple. This scenario still leaves the market vulnerable to negative headline risk, especially related to negative developments around trade. Earnings growth will be the key driver of forward performance and until revisions begin to move higher, upside from current levels will likely be limited. Better buying opportunities will likely emerge down the road, but now is not the time to be chasing the market higher.

The Week Ahead: Second quarter earnings season continues to wind down with just 11 members of the S&P 500 scheduled to release results during the week. Included in this group are two components of the Dow Jones Industrial Average. On the data front, reports of interest include; the July consumer price index (CPI), July import and export prices, the August Philadelphia Fed Business Outlook survey, July retail sales, August Empire State manufacturing survey, July industrial production, July housing starts and the University of Michigan’s August consumer sentiment survey. The Fed speaking calendar will be quiet with no members of the Federal Reserve scheduled to present.


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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