Market Volatility and a Very Busy Week in Washington

in Market Commentary by

A conciliatory tone on trade from both China and the US as well as easing fears around a military escalation stemming from Syria’s apparent chemical attack led to rising stock prices. Tech stocks got a boost from well-received testimony from Facebook CEO Mark Zuckerberg, though many officials cited the need for increased regulatory oversight of personal data and privacy. The market continued to digest comments from Fed Chairman Powell last week reiterating a view for gradual rate hikes. Bonds were down modestly for the week.

Weekly Returns:

S&P 500: 2,648 (+1.7%)
FTSE All-World ex-US (VEU): (+1.0%)
US 10 Year Treasury Yield: 2.82% (+0.05%)
Gold: $1,333 (+0.3%)
EUR/USD: $1.234 (+0.5%)

Major Events:

    • Monday – The Justice Department agreed to allow Bayer’s acquisition of Monsanto based on additional asset sales.
    • Monday – Iran’s currency hit a record low against the dollar, down by about a third this year and adding to economic pressures.
    • Tuesday – Sprint and T-Mobile were said to have reengaged in merger talks. Both stocks rose.
    • Tuesday – Chinese President Xi Jinping soothed trade war fears with a speech which promised further economic liberalization and greater intellectual property protection.
    • Wednesday – Federal Reserve minutes showed greater confidence in reaching the 2% inflation goal, suggesting additional rate hikes remain likely.
    • Wednesday – Fidelity announced changes to simplify how it charges for asset management. Most clients appear set to pay well over 1% of assets on top of fund fees.
    • Thursday – Broadcom announced a $12 billion share buyback program following its failed acquisition of Qualcomm.
    • Thursday – Speaker of the House Paul Ryan announced he will not seek reelection in November.
    • Thursday – Former FBI head James Comey released a book which included scathing commentary about President Trump.
    • Friday – JP Morgan, Wells Fargo and Citigroup all reported solid increases in earnings but shares fell as investors appeared to be expecting more.
    • Friday – President Trump is pushing for a more forceful response to Syria than military officials originally presented, according to a Wall Street Journal report.
    • Friday – Embattled Trump lawyer Michael Cohen was said to have arranged a $1.6 million settlement for a top Republican fundraiser to a former Playboy model who said she was impregnated.

    Our take:

    Don’t expect market turbulence to dissipate anytime soon. There is a lot going on.

    President Trump is expected to mull military options against Syria over the weekend and is reported to be pushing for more punitive strikes which could anger Russia and Iran. Federal investigators are still combing through documents recently seized in a raid of the President’s lawyer Michael Cohen, who is now under criminal investigation and also appears to have arranged for a settlement between a top Republican fundraiser and a former Playboy model. Talk of trade wars and tariffs remain in the headlines. Lawmakers are digesting Mark Zuckerberg’s testimony about personal data and privacy, and many voiced support for increased regulation. Speaker of the House Paul Ryan effectively quit, which will create significant instability in the GOP. Iran’s currency is plummeting, which will pressure the regime. Sanctions on Russia are driving up aluminum prices. The Fed appears to be positioning to allow for an additional rate hike this year.

    Oh, and earnings season is kicking off in earnest. As far as stock prices go, that could be the most important item. Analysts are expecting double digit earnings growth. If it meets expectations, valuations on major indexes could look more attractive than they have in some time. It can be easy to forget, but stocks represent ownership in companies, not countries. For now, despite all the drama, the economy is plowing ahead. Tax legislation could encourage additional corporate investment.

    Volatility cuts both ways. The market is good at pricing in probabilities of outcomes but it doesn’t have a crystal ball any more than any individual does. In times of uncertainty, there is more risk, but good outcomes also present more opportunity.

    To learn more, contact a financial advisor.

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    Craig Birk, CFP®

    Craig Birk, CFP®

    Craig Birk leads the Personal Capital Advisors Investment Committee and serves as the 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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