Weekly Market Commentary September 24, 2018

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The S&P 500 hit a new high last week as economic reports remained positive and tariff news was not as bad as expected. The S&P rose 0.8% to eclipse the high set toward the end of August. Global stocks continued to improve, pushing the MSCI ACWI to a 1.6% gain. The good news in stocks seems to be weighing on bonds as the Bloomberg BarCap Aggregate Bond Index dropped 0.3%.

This week, the Federal Reserve will meet and decide whether to raise rates. All expectations are the Fed will raise rates 0.25%. We will be paying attention to forecasts and commentary from the Fed to discern how many rate hikes will likely occur in 2019.


Key Points for the Week

  • U.S. stocks increased 0.8%, pushing the S&P 500 to a new high.
  • The U.S. implemented tariffs on an additional $200 billion worth of Chinese goods.
  • The Federal Reserve is widely expected to raise rates this week.

Tariffs

The most important news release this week was the Trump administration’s decision to add 10% tariffs on $200 billion worth of Chinese goods. When the trade news has been negative, U.S.-based small companies have tended to outperform and international stocks have tended to lag. The global implications of a trade dispute between the two largest economies are generally negative, but expectations are international markets will be affected the most.

Markets had feared a 25% tariff would be implemented instead of a 10% levy and the Chinese response would be very strong. Instead, the tariffs implemented on Chinese goods will go into effect on September 24 starting at 10% and then rising to 25% on January 1. China announced a 10% tariff on $60 billion in U.S. goods as a response. The news being better than expected contributed to the stronger performance in global stocks relative to U.S. markets. Small-cap U.S. stocks, as measured by the Russell 2000 Index, dropped last week.

White House officials said China could expel the tariffs by agreeing to trade demands, which include: U.S. companies gaining greater access to the Chinese market and dropping the requirement for U.S. companies to hand over valuable technology to their Chinese partners.

This round of tariffs is different from the previous $50 billion worth  as those were geared toward goods that wouldn’t impact the American consumer. The new tariffs, however, are on goods ranging from electronics to food. Walmart and Target have already warned customers that price increases will be coming.

Over the weekend, China put talks on hold in response to U.S. negotiating tactics. We continue to expect a resolution sometime this year, while acknowledging the risk of a significant trade dispute continues to edge higher.


Fun Story

‘Talk Like A Pirate Day’ still gets an ‘aye’ vote in Lake Worth

September 19 is “International Talk Like a Pirate Day.” Although celebrated in many cities around the world, city councilors in Lake Worth, Florida, have taken the faux holiday a little further than most. Since 2012, councilors have dressed and talked like pirates during their public meetings. Mayor Pam Triolo recounted the time when talking like a pirate was passed as a city proclamation. She said she didn’t expect her first bout of national attention to be about Pirate Day.


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