The S&P 500 dropped 0.7% last week primarily due to a sharp decline on Monday after the Chinese retaliated against increased U.S. tariffs. The global MSCI ACWI also declined 0.7% as international developed markets increased slightly, but declines in emerging markets pushed the overall index lower. Concerns on how trade will affect economic growth continued to support bonds. The Bloomberg BarCap Aggregate Bond Index climbed 0.3% on greater trade risk and retail sales coming in below expectations.
Key Points for the Week
- The U.S. and China each took steps to bolster their negotiating positions when trade talks resume.
- Economic data missed expectations as U.S. retail sales declined marginally and global industrial production continued to trend lower.
- Stocks dropped more than 2% Monday on news of Chinese retaliation but rallied to cut the week’s overall losses.
Declining industrial production growth is one casualty of the ongoing trade dispute. Industrial companies compete globally, and the equipment they manufacture is used to help other businesses expand. The accompanying chart shows how industrial production growth has slowed in recent years as concern about trade has increased. Europe has been hit especially hard as a noted exporter of industrial goods to China. It has also been slowed by the uncertainty regarding Brexit.
Trade continues to move the markets, and both the U.S and China are making strategic adjustments to improve their negotiating positions after the U.S. raised tariffs two weeks ago.
The much-anticipated Chinese retaliation to the U.S. tariffs occurred last Monday when China increased tariffs to 25% from 10% on $60 billion worth of U.S. goods. The news concerned investors, and the S&P 500 fell more than 2% for the day.
China has been making moves behind the scenes by slowly selling its U.S. Treasuries. China has sold U.S. Treasuries nearly every month since September and sold a whopping $20.5 billion of U.S. government bonds in March.
The U.S. added China’s Huawei Technologies to a trade blacklist. This puts Huawei, a Chinese telecom giant, in a difficult position as it will no longer be allowed to conduct business with any U.S. firm. Although the move against Huawei is communicated as an anti-spying measure, it shows how the competition between the U.S. and China is growing more intense.
Meanwhile, the Trump administration is seeking to improve relationships with its allies abroad and in Congress. It announced steel and aluminum tariffs on Mexico and Canada will end, a move that will appease those two countries while also clearing a Republican objection to the revised NAFTA agreement, officially labeled USMCA. The president also announced a six-month delay in any new tariffs on European and Japanese automobiles.
Expect the back and forth to continue, even if a deal is signed. The U.S. is resetting its relationship with China, while China is striving to move into market segments traditionally dominated by the U.S. Additional volatility is likely to be one outcome of this competition.
The U.S. Ambassador to Austria recently signed an agreement with the head of Austria’s McDonalds to offer support to U.S. citizens who cannot contact the U.S. embassy. Americans can now go to McDonalds and report a stolen or lost passport or seek assistance for travel. Issuing passports will still be handled at the embassy; so, no, you can’t order a Big Mac with a side of passport. But if you lose one, you can grab a side of fries while you figure out what to do.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds
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