Market Commentaries

  • U.S./China Trade Agreement: “Phase 1” Reportedly Reached


    Market Overview


    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 12/13/19. Rates and Economic Calendar Data from Bloomberg as of 12/13/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.

    Happening Now                   

    Global equity markets finished higher for the week, led by emerging market equities, which surged following the announcement of a U.S./China trade agreement. In the U.S., the S&P 500 Index pushed to a level of 3,169, representing a gain of 0.77%, while the Russell Midcap Index gained 0.36% for the week. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 0.30% over the week. On the international equities front, developed markets jumped up by 1.72%, while emerging markets,as previously mentioned, sky-rocketed 3.63% higher. Finally, the 10-year U.S. Treasury yield finished the week at 1.82%.

    It has been a little under two years since the United States implemented 30% tariffs on all solar panel imports and 20% tariffs on all washing machine imports on February 7th, 2018. In hindsight, this would mark the beginning of the U.S/China tariffs saga, which gradually escalated over the subsequent 22 months, gripping the attention of capital markets along the way. Despite a myriad of false reports claiming progress over the tenure of negotiations, we’re pleased to announce that it appears a “Phase 1” deal has been agreed upon by both parties pending documentation execution, according to formal statements delivered by each respective country.

    The deal comes at an opportune time as the U.S. had been scheduled to implement a 15% tariff on additional imports of approximately $160 billion in Chinese goods, almost all of which were consumer goods, on December 15th. As part of the deal, the U.S. agreed to forgo implementation of the December 15th tariffs entirely, and cut tariffs on $120 billion of imports that had been initially implemented on September 1st from 15% to 7.5%. Meanwhile, the Chinese reportedly agreed to purchase additional U.S. goods, agricultural products in particular, over the next two years and cancel plans for further tariff implementation.

    It is important to note that the bulk of the existing tariffs that have been placed on Chinese imports by the U.S. remain in place. In fact, of the $500 billion of Chinese goods imported to the U.S each year, tariffs remain on about $370 billion of those imports, a potential bargaining chip for the U.S. as negotiations for the next phase of the U.S./China trade agreement presumably begin. While this agreement doesn’t entirely remove one of the significant risks facing investors in 2020, it does indicate that increased risk from further tariff escalation is unlikely.

    Regardless, there’s always a risk that negotiations go sideways, or reverse completely, which is why we continue to encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within an appropriately diversified framework that is consistent with their objectives, time-frame, and tolerance for risk.

    Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

    There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.

    The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.

    Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

    Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

    Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.


    MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

    MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

    Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

    ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

    ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

    Investors cannot directly purchase any index.

    LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

    The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

    The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

    DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.

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