Heightened Trade Concerns Constrain Markets
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 06/22/18. Rates and Economic Calendar Data from Bloomberg as of 06/25/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Over the past week global stock markets took a few steps back despite housing starts hitting an 11-year high, the expectation for lower oil prices due to an agreement among members of OPEC to reduce output, and the anticipation of further surprises to the upside as it relates to the release of productivity data over the coming week. Nonetheless, the S&P 500 Index retreated to a level of 2,775, representing a decline of 0.87%, while the Russell Mid-cap Index lost 0.62%. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, stood alone as it gained 0.11%; an indication that on-going trade disputes (Ex. China) are likely to blame for the broad based losses that investors experienced over the past week. In this regard, it is important to remember that small cap companies derive the majority of their revenues domestically, and are thus less sensitive to global happenings. On the international equities front, developed markets fell 0.96% last week while emerging markets declined by 2.27%. Finally, the 10 year U.S. Treasury yield declined modestly and settled at 2.90%, while the U.S. Dollar held flat for the week.
As you may recall, our global economic outlook for 2018 has called for synchronized global growth with the U.S. slightly outpacing the rest of the pack. Our thesis has not changed. In fact, in our view, it has been continually reinforced. The global consumer has undoubtedly experienced a reawakening as data on global consumer spending continues to impress. Capital expenditures, an area that was once a faint area of concern, appears to have bucked the trend and is beginning to show strength. Confidence among global business leaders has reached peak levels and global interest rate levels remain accommodative. In our view, these highlights give credence to the fact that the global economic growth story is in fact alive and well.
The thousand pound albatross that has weighed on the market’s reaction to the overabundance of positive economic data just mentioned has been the escalating trade dispute between the U.S. and China. Both sides have shown an unwillingness to back down, as each threatens to increase the level of imports that tariffs would be applied to. As far as we’re concerned these disputes have been nothing more than noise; a distraction from continued strength in underlying macroeconomic factors.
Although we believe that current concerns surrounding trade disputes are likely to be resolved over the short term, and that the underlying economic fundamentals speak volumes about the strength of the global economy, downside risks and economic uncertainties still remain. With that said, portfolio diversification becomes increasingly important during times of heightened uncertainty, and we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios. If you would like to learn more about how we are helping clients invest dynamically and consistently with their own goals, time-frame and tolerance for risk, please do not hesitate to speak with your Hennion & Walsh Financial Advisor.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion & Walsh cannot guarantee the accuracy of said information and cannot be held liable. This information is provided for informational purposes only and is not a solicitation to buy or sell any of the asset classes or sectors discussed.
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