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Weekly Market Digest: Trade Talk Prompts a Thursday Reversal

Global equities started the week strong, maintaining their positive momentum until Thursday’s dour news on the U.S.-China trade front sparked a reversal. Foreign equities fell the hardest, although a midday Friday rally allowed U.S. stocks to stay above water for the week. In the U.S., technology and utilities stocks posted the strongest gains, while energy and basic materials led declines. Bonds increased as treasury yields fell.

Weekly Returns

S&P 500: 2,708 (+0.1%)
FTSE All-World ex-US (VEU): (-1.0%)
U.S. 10 Year Treasury Yield: 2.63% (-0.07%)
Gold: $1,318 (+0.0%)
EUR/USD: $1.132 (-1.2%)

Major Events

  • Monday – Bill Gross, legendary bond investor and PIMCO co-founder, officially announced his retirement.
  • Monday – Slack filed with regulators to go public, likely pursuing a direct listing rather than a traditional initial public offering.
  • Tuesday – President Trump gave his State of the Union speech, where he once again pleaded with lawmakers to support his border wall plans.
  • Wednesday – GM reported better than expected earnings, where strong SUV and truck sales in North America helped offset weaker sales in China.
  • Thursday – BB&T and SunTrust announced they will merge into a $66 billion company, marking the largest bank deal since the financial crisis.
  • Thursday – White House officials said Trump was highly unlikely to meet with China’s Xi Jinping before the next tariff deadline in March.
  • Friday – Brazil’s Vale announced it is evacuating 500 residents near another one of its dams containing mining waste, after a consulting firm refused to validate the dam’s safety.

Our Take

And just like that, sentiment can shift in the opposite direction. Only a few days ago, markets were happily marching higher on strong fourth quarter earnings, a more dovish stance from the Federal Reserve, and speculation (and hope) that trade discussions with China were moving in the right direction.

But the reversal on Thursday is a stark reminder that none of these issues are fully resolved. Earnings are always a moving target, and despite strength in Q4, forecasts for this quarter have moved lower. The tax cuts are rolling off, and a number of companies have issued weak guidance driven by slowing growth in China and Europe. Interest rates will likely stay put, at least in the short term, but another government shutdown could be right around the corner. And when it comes to China, hope shifted to uncertainty when Larry Kudlow commented that both sides are still far away from a trade deal. The White House also reported that President Trump and Xi Jinping are unlikely to meet before the next tariff deadline in March.

So the mood is once again slightly negative, but this shouldn’t be a big surprise. These reversals are likely to continue in both directions until some sort of resolution is reached, particularly as it relates to China.

Read More: Market Commentary

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