The S&P 500 hit a new high last week as economic reports remained positive and tariff news was not as bad as expected. The S&P rose 0.8% to eclipse the high set toward the end of August. Global stocks continued to improve, pushing the MSCI ACWI to a 1.6% gain. The good news in stocks seems to be weighing on bonds as the Bloomberg BarCap Aggregate Bond Index dropped 0.3%.
This week, the Federal Reserve will meet and decide whether to raise rates. All expectations are the Fed will raise rates 0.25%. We will be paying attention to forecasts and commentary from the Fed to discern how many rate hikes will likely occur in 2019.
Key Points for the Week
- U.S. stocks increased 0.8%, pushing the S&P 500 to a new high.
- The U.S. implemented tariffs on an additional $200 billion worth of Chinese goods.
- The Federal Reserve is widely expected to raise rates this week.
The most important news release this week was the Trump administration’s decision to add 10% tariffs on $200 billion worth of Chinese goods. When the trade news has been negative, U.S.-based small companies have tended to outperform and international stocks have tended to lag. The global implications of a trade dispute between the two largest economies are generally negative, but expectations are international markets will be affected the most.
Markets had feared a 25% tariff would be implemented instead of a 10% levy and the Chinese response would be very strong. Instead, the tariffs implemented on Chinese goods will go into effect on September 24 starting at 10% and then rising to 25% on January 1. China announced a 10% tariff on $60 billion in U.S. goods as a response. The news being better than expected contributed to the stronger performance in global stocks relative to U.S. markets. Small-cap U.S. stocks, as measured by the Russell 2000 Index, dropped last week.
White House officials said China could expel the tariffs by agreeing to trade demands, which include: U.S. companies gaining greater access to the Chinese market and dropping the requirement for U.S. companies to hand over valuable technology to their Chinese partners.
This round of tariffs is different from the previous $50 billion worth as those were geared toward goods that wouldn’t impact the American consumer. The new tariffs, however, are on goods ranging from electronics to food. Walmart and Target have already warned customers that price increases will be coming.
Over the weekend, China put talks on hold in response to U.S. negotiating tactics. We continue to expect a resolution sometime this year, while acknowledging the risk of a significant trade dispute continues to edge higher.
September 19 is “International Talk Like a Pirate Day.” Although celebrated in many cities around the world, city councilors in Lake Worth, Florida, have taken the faux holiday a little further than most. Since 2012, councilors have dressed and talked like pirates during their public meetings. Mayor Pam Triolo recounted the time when talking like a pirate was passed as a city proclamation. She said she didn’t expect her first bout of national attention to be about Pirate Day.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.