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Daily Capital

Tariffs, a Weak Jobs Report, and Expected Rate Hikes

The week was a see-saw of emotions related to a potential trade war with China. Stocks dropped Monday on fears of new tariffs, then rallied for three days as officials toned down rhetoric. On Thursday evening, President Trump suggested a review on more tariffs impacting about $100 billion worth of goods. China responded that it would fight protectionism to the end. That, along with a weaker than expected jobs report and Fed Chairman Powell reiterating expected rate hikes later in the year, pushed stocks down 2% on Friday.

Weekly Returns:

S&P 500: 2,604 (-1.2%)
FTSE All-World ex-US: (-0.9%)
US 10 Year Treasury Yield: 2.77% (+0.03%)
Gold: $1,333 (+0.3%)
EUR/USD: $1.228 (-0.2%)

Major Events:

  • Monday – The EPA moved to ease vehicle emission standards.
  • Tuesday – The Trump administration threatened tariffs on about $50 billion of Chinese imports.
  • Tuesday – Spotify completed a successful IPO, leaving it with a $26 billion valuation at the end of trading. The company opted for a direct listing, avoiding investment bank underwriters.
  • Wednesday – Facebook CEO Mark Zuckerberg said it was a mistake not to focus more on potential misuse of data and said the data from as many as 87 million users may have been improperly shared.
  • Wednesday – JM Smucker announced it will buy pet food company Ainsworth Pet Nutrition for $1.7 billion and look to sell its baking business, which includes Pillsbury.
  • Wednesday – The median price of a house sold in San Francisco in the first quarter was $1.6 million, up 24% from a year ago.
  • Thursday – The owner of the NYSE agreed to buy the Chicago Stock Exchange
  • Friday – U.S. stocks sell off on concerns about trade war despite efforts by administration officials to allay concerns.
  • Friday – In prepared comments, Fed Chairman Powell said the outlook for inflation and employment support further gradual rate hikes.
  • Friday – The US added 103,000 jobs in March, less than expected. Wages rose 2.7% and the official unemployment rate stayed at 4.1%.

Our take:

Last year, the S&P 500 moved more than 1% on just nine days and didn’t have a 2% day. In the last 11 trading days, we’ve had nine 1% moves and five 2% moves. So, yes, volatility has returned. What’s normal? Somewhere in the middle. Interestingly, despite the big daily moves, the ups and downs have mostly cancelled each other out and US stocks are down only about 2% for the year.

This week, the market was focused on the possibility of a trade war with China. President Trump called for evaluation of more tariffs and made strong statements while his officials tried to soften the tone and calm markets. Most of the tariffs being discussed 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 most likely this story will end up yet another geopolitical risk that is relatively quickly forgotten.

Safer assets such as bonds and the often overlooked utilities sector held up well for the week, serving as a reminder of the long term benefits of diversification not just at the asset class level but among sectors and styles as well. Predicting corporate earnings is hard, predicting political decision making is harder still. That is exactly reason why we recommend avoiding market timing. Despite the negative week, it was telling that the market seemed to want to go up when there was no bad news.

Friday’s jobs report was softer than expected but this data series tends to be choppy and a rolling average is more informative. This month balances out February’s higher than expected results and the overall picture continues to paint a picture of a strong economy.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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