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Weekly Market Digest: Two Steps Forward, One Step Back

The S&P 500 ended its eight day winning streak Tuesday after the U.S. announced potential tariffs on European goods, sparking fears of another trade war. The decline was short-lived, however, and stocks resumed their upward march following the Fed minutes release and positive developments in the U.S.-China trade war. This allowed global stocks to finish the week slightly higher. Bond yields were up slightly and gold was relatively flat.

Weekly Returns

S&P 500: 2,907 (+0.5%)
FTSE All-World ex-US (VEU): (+0.2%)
US 10 Year Treasury Yield: 2.56% (+0.06%)
Gold: $1,291 (+0.0%)
USD/EUR: $1.130 (+0.7%)

Major Events

  • Monday – Thirteen parents and one college coach pleaded guilty in the much publicized college cheating scandal.
  • Monday – The Trump administration released a list of $11 billion worth of European goods that it is considering for tariffs.
  • Tuesday – Saudi Aramco, the world’s most profitable company, raised $12 billion in its first international bond sale.
  • Wednesday – In a stunning announcement, scientists released the first ever image of a black hole. This particular black hole is at the center of a galaxy roughly 55 million light years from Earth.
  • Wednesday – The Fed minutes showed a majority of participants expect no change in rates for the remainder of 2019.
  • Wednesday – Treasury Secretary Steven Mnuchin stated the U.S. and China have agreed on an enforcement mechanism for their trade deal.
  • Wednesday – Reports surfaced that Uber would seek roughly a $90 to $100 billion valuation in its IPO, lower than some expected.
  • Thursday – Julian Assange, the founder of WikiLeaks, was arrested at the Ecuadorean embassy in London after Ecuador withdrew its asylum protection.
  • Friday – Chevron announced it is acquiring Anadarko Petroleum in a cash and stock deal worth $33 billion.

Our Take

This week’s theme? Two steps forward and one step back. The step back occurred first, when reports surfaced that the U.S. is considering tariffs on $11 billion worth of European goods. Certainly not what investors want to hear after seemingly good progress on the dispute with China.

So is another major trade war on the horizon? Anything is possible, but the likelihood seems very low. First and probably most important, the U.S. has a much better relationship with Europe than it does with China. And while there is always some degree of unfairness amongst global trade partners, those infractions aren’t nearly as severe between the U.S. and Europe as they are with China. This means any differences would likely get resolved faster. And let’s be honest, $11 billion is a drop in the bucket, relatively speaking. Regardless, it’s something that needs to be monitored. Further increases in protectionism could act as a drag on global growth.

Despite this step back, there were also some steps forward. The first came with the Fed minutes, which reiterated the central bank’s stance that rates will likely stay put for the remainder of 2019. Of course this could change pending new economic data, but it removes some of the fear that the Fed is on a predetermined track to raise rates.

The second positive development came shortly after the Fed minutes, when Treasury Secretary Steven Mnuchin stated the U.S. and China have agreed on an enforcement mechanism for the potential trade deal. There are still a number of hurdles to getting a deal done, but this was one of the larger roadblocks. So on the whole it’s removal is a positive development, and helps keep this week’s flow of events moving in the right direction.

Read More: Market Commentary

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