Weekly Market Updates


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Week Ending May 17

After reaching a new high on the last day of April, the S&P 500 has trended down in May. Despite trading higher in the middle of the week, the index traded lower by -0.76% to close out last week. The markets rode the wave of trade talks with China. The potential talks have been a highly watched event leading up to the Group of 20 meeting in Japan next month. On Friday, President Trump announced a delay on tariffs on imported vehicles from the EU, Japan, and other nations. The delay allows the focus to be on China and not with some of the United States key allies. Tensions in the Middle East have come back into play with President Donald Trump trying to navigate the conflict and its implications on his chances at winning a second term.

Treasury prices were up over the course of the week as trade tensions between the United States and China led investors to seek the perceived safety of Treasuries. On Monday, Chinese state-controlled newspaper editorials suggested that China was unwilling to agree to President Trump's terms and the Trump administration announced they would place a 25% tariff on the remaining $300 billion of untaxed goods. China retaliated by saying they would place tariffs on $60 billion of U.S. imports. However, President Trump confirmed that he planned to meet with Chinese President Xi at the G-20 summit and said that they could still reach a deal within the coming weeks. On Thursday, Treasury Secretary Steven Mnuchin said he would fly to Beijing to resume talks, but this optimism was countered by Trump signing an executive order that would allow the federal government to ban U.S. companies from buying telecom equipment from "foreign adversaries," which is directed at Chinese telecom giant Huawei in the 5G industry.


Week Ending May 10

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The S&P 500 posted its biggest one-week price drop of the year as trade talks between the U.S and China remained at the forefront of traders' minds. On Friday, tariffs increased to 25% on $200 billion of Chinese goods, which many investors fear will escalate a trade war and lead to slower economic growth. In other economic news, inflation data came in below expectations, furthering the case for the Federal Reserve to remain dovish. Looking to the future, near term market movements are likely to be driven by sentiment over the trade dispute between the U.S. and China. Looking longer-term, the S&P 500 is reasonably priced at 17.4x 2019 EPS, but will likely need strong earnings growth to continue to push higher.

Yields fell last week on softer-than-expected inflation data and an escalation in trade tensions between the U.S. and China, with the yield on the U.S. 10-year Treasury ending the week below 2.50%. On Friday, the U.S. increased tariffs on $200 billion of Chinese goods to 25%, and the political uncertainty added to demand for Treasuries. Concerns that trade tensions between the world's two largest economies could slow economic growth also weighed on yields. Meanwhile, the Consumer Price Index came in slightly below expectations, rising 0.3% over the prior month. Core consumer prices, which exclude food and energy, also came in below expectations. The muted inflation data seemingly reinforced the market's view that the Fed won't raise rates this year, with the market-implied probability of a rate hike holding steady at 0% and the probability of cut rising from 50% at the end of last week to about 60% at the end of this week.


Week Ending May 3

The S&P 500 Index hit an all-time closing high of 2,945.83 last Wednesday as the index recorded a 22-basis point gain for the week. The Federal Reserve issued a statement on Wednesday leaving rates unchanged and acknowledged that inflation had decreased below their 2% objective. In economic news, US initial jobless claims of 230K matched the previous week's claims but were higher than the consensus estimate of 215K. The US unemployment rate came in at 3.6% for April, the lowest level since December 1969. Nonfarm payrolls gain of 263K was a large increase over the anticipated 190K. Crude oil closed the week at $61.94 per barrel, a decrease of 2.15% for the week. Crude oil prices fell on an unexpected increase in U.S. inventories, contributing to energy being the worst performing sector last week.

Last week's FOMC statement cited continued strength in the labor market and a low unemployment rate but growth in household spending and business fixed investment was seen slowing in Q1 2019. Much was made of the statement's comment on weak overall inflation which, on a 12-month basis, has declined below 2 percent. In keeping with the dual mandate of high employment and price stability, there was no change to the target range for federal funds. The committee committed to being patient in adjusting the target range while it assesses realized and expected economic conditions.