Weekly Market Commentary May 27, 2019

The S&P 500 dropped 1.1% last week to extend its losing streak to three weeks. Ongoing trade disputes and weaker economic data raised concerns regarding slow economic growth. The global MSCI ACWI declined 0.9% as international markets moved with the S&P 500. Concerns about how trade will affect economic growth continued to support bonds. The Bloomberg BarCap Aggregate Bond Index climbed 0.3% on hopes rates will be lower in the future.

Key Points for the Week

  • Economic data generally missed expectations amid concerns that trade friction between the U.S. and China is slowing global economic growth.
  • Stocks dropped for the third week in a row.
  • Even with the decline, the S&P 500 is up 13.7% this year.

S&P 500 YTD

Markets

The last few weeks have felt like a drive toward a great Memorial Day weekend trip being interrupted by a flat tire. The S&P 500 dropped for its third straight week, and the popular technology sector has led the market lower. The biggest issue is the continued deterioration in trade talks between the U.S. and China. Investors worry the damage to the already-slowing global economy will hurt corporate earnings and raise the risk of recession in coming quarters.

Trade

Trade concerns with China continued to push markets lower as the discussion last week was dominated by tariffs and reprisals rather than any movement toward additional talks and an eventual deal. President Trump’s ban on Huawei pressured technology companies, and the MSCI information technology sector lost an additional 2.7%. The sector has dropped 7.2% since the market peak in early May.

PMI

Uncertainty regarding trade continues to make its presence felt in economic data. The global Purchasing Managers’ Index for manufacturing data released last week showed continued slowing global growth. While still expanding, the index grew at the slowest pace since President Trump was elected. The slowdowns were seen in Europe and Japan, too.

Federal Reserve

Investors should not expect the Fed to quickly adjust its views and cut rates. Last Wednesday, the Federal Open Market Commission (FOMC) released minutes explaining its decision to hold rates steady, in spite of investor concerns that rates are too high. The FOMC projected sustained economic growth with labor market conditions and inflation near 2% as the most probable of all outcomes.

Market

Investors should remember, even with the decline, the U.S. stock market has had a very good year. Expectations that investing will be like a fast and simple trip down the Interstate (without the flat tire) are unfounded. Investing is more like driving on a bumpy country road with few road signs, surprise detours, and obstacles to navigate along the way. Keep the last few weeks in perspective, and don’t expect too smooth of a ride.

Fun Story

‘He’s not dead, he’s just sleeping’

Hudson the Husky, a dog in Muscatine, Iowa, has been known to give motorists and customers a fright due to the spot he chooses to nap. Hudson lies on the concrete sidewalk between the repair shop and the road, looking like he was just hit by a car. His owner says he just likes to sun bathe.

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