Investors saw major market moves this past week with the Dow starting off on Monday with a 767-point loss. It recovered half as much on Tuesday and again on Thursday. The wild ride of drops and rallies ended with the Dow Jones Industrials giving back just 0.7% for the week. The S&P 500 lost 0.46% to close out at 2,918.65 and the Nasdaq Composite Index was lower by 0.56%. Declining stocks on the NYSE edged out loosing names by about 3 to 2. Gold prices continue to rise with all this volatility and settled on the week at $1,497/oz. a gain of $51/oz. -its highest level since April 2013. Market sectors were mixed with half showing gains for the week led by safe-haven and interest sensitive utilities and telecommunication stocks, higher by 0.82% and 0.64%, respectively. Although crude oil prices moved only a bit lower, energy stocks sank with nearly a 2.5% pullback. Technology was also negative on average.
This week it was all about tariffs and currency. The Chinese let its currency weaken to 7 yuan to the U.S. dollar causing ripple effects across bond and equities prices. Other countries including India, Thailand and New Zealand decided that the global economic climate was so dire that they cut interest rates, which sent stocks reeling on early Wednesday with a recovery later in the day. The trade war is getting worse as both the U.S. and China are digging in for the longer term. By itself, the imposition of 10% tariffs on the remaining $300 billion of imports from China proposed by the President for September 1 is not a huge deal. Analysts at Goldman Sachs estimate that 25% tariffs on all Chinese imports would lower U.S. gross domestic product by 0.5% to 0.6% and cut profits for the S&P 500 Index by about 4%. But the U.S. and global economies were already under strain before the latest trade salvo. And history suggests business confidence likely took another hit, partly because trade policy seems so unpredictable.
There are reasons not to overreact, however. Our economy is still enjoying modest, low-inflationary growth, which should persist despite trade headwinds, with the strength in consumer confidence and healthy levels of household spending being key catalysts. Also, there is the Fed, which despite its hesitation, is likely to continue cutting interest rates, especially if the new tariffs put downward pressure on global growth as seems likely. Finally, second quarter earnings season is ending on a decent note and should continue to be a modest counterweight as things stand now. The recent downdraft in equity prices took down some of the valuation froth along with it to more historic levels Thus sticking with one’s long-term investment plan remains prudent.
Here is the answer to last week’s trivia question: The ticker symbol “K” is assigned to what New York Stock Exchange listed company? Kellogg, Kraft-Heinz, Kimberly-Clark or Kroger. Answer: Frank from New Jersey got it right: Kellogg.
Today’s Trivia Question: Publicly traded Equifax, Inc. and Trans Union LLC compete to collect and maintain consumer credit information on most U.S. consumers. What is the third major consumer-based credit bureau? Dunn & Bradstreet, Moody’s, Experian or First Data Corp.