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Capital Markets Review & Commentary

Market turbulence initiated in February continued into March. Early signs of volatility were generally ascribed to fear of interest rate hikes, but more recent gyrations are clearly correlated to concerns about a potential trade war with China.

Whipsawing prices demonstrate that no one has a good handle on what the likelihood of a trade war is or what the implications will be. President Trump is pushing for changes in behavior from China regarding intellectual property and open markets, and that is probably appropriate to some degree. Most of the tariffs announced recently are only proposed and there is still time to negotiate, but market reaction is reflecting the uncertainty involved. Only time will tell, but both sides seem to realize severe escalation would be harmful to growth and so we think it is likely this story will end up yet another geopolitical risk that is relatively quickly forgotten.

Facebook came under heavy scrutiny when it was revealed millions of user’s data was inappropriately shared with an analytics company working for the Trump campaign. What was interesting to us was the ensuing spat among the tech giants. Apple, Salesforce and even Elon Musk made comments critical of Facebook. There is a growing feeling that search, smart phones and social media should be regulated in some way and growing reflection regarding the impact they are having on society. So far, the tech giants have done an impressive job of maintaining pristine images and attractive brand perception. If that changes, it may be hard to justify lofty stock valuations.

For the month, tech lagged the broader market while more defensive sectors like utilities took leadership. But tech is still leading for the year and still has strong momentum overall. We don’t have a sector forecast for the remainder of the year but like to remind investors who may not be adequately diversified that what goes up the most in a bull market usually falls the most when the party stops.

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