THE BIGGEST STORIES THAT MATTERED FOR THE MARKET LAST MONTH
WHAT MOVED THE MARKET
PROGRESS MADE ON TRADE
Fed’s neutral interest rate (one that neither hurts nor helps the economy). The concern is that the U.S. economy continues to outperform the rest of the globe. That in turn would produce a pick-up in demand and inflation. In general, asset managers focused on the positive economic data and growth and shifted their expectations for a recession out to 2020. They believe the economy can weather the Fed’s gradual path of rate hikes and have shifted their focus from defensive and late-cycle investments to growth. Last week, global markets lost $2.7 trillion in market cap, and the U.S. accounted for more than half – about $1.7 trillion. Emerging markets are now down 17%, year to date, while European markets hit a two-year low. China’s Shanghai Composite lost 8% and the Shenzen Composite Index dropped 10%. Both markets are now down 35% from the January highs. The weakest U.S. sectors were industrials, tech, materials, financials, and energy. The 10-year U.S. Treasury yields spiked to 3.25% from sub 3%, triggering asset-allocation programs to sell stocks. Dollars have been chasing growth all year, primarily in tech. But investors THEN THE RUG GOT PULLED OUT...
Trade talks and tariffs dominated the news again in the past month. Compromise with the European Union and Japan is still in the works, but investors are optimistic these negotiations hold promise. But relations with China were a different story... Early in September, reports surfaced that Treasury Secretary Steven Mnuchin would meet with the Chinese vice premier for further negotiations. When President Donald Trump announced he would be implementing another $200 billion in tariffs on Chinese imports, China canceled the visit. Despite continued trade setbacks, the markets have come to expect the worst. According to financial-data firm FactSet, U.S.-listed exchange traded funds (ETFs) saw $36.7 billion worth of inflows. All of this powered the S&P, Nasdaq, and Dow to new all-time highs. Late in the month, the Fed raised interest rates to a target range of 2%-2.25%, as expected. But more important was Fed Chair Jerome Powell’s optimistic comments on the U.S. economic outlook... He said this is a WE GOT AN EXPECTED FED RATE HIKE
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particularly bright moment for the economy and the current tightening cycle reflects economic strength. However, Powell also said recently we were still a long way from the
reassessed their conviction when the trade became too crowded and rates rose. When rates increase, it adversely impacts the present value of future cash flows. In turn, it causes
12 September 2018
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