Markets, Economy

Weekly Kickstart (04/16/2018-04/20/2018)

4/16/18 8:00 AM

/iStock-462756183.jpgStocks rebounded last week, as the S&P 500 rose by 1.99 percent to 2,656.30. That solid gain left the benchmark down just 0.65 percent year-to-date, and only 7.54 percent below the all-time closing high. The welcome turnaround in equities occurred even amid escalating tensions between the United States and Russia over a potential military conflict in Syria. One thing that helped investors overlook the recent developments in the Middle East was a speech by Chinese President Xi Jinping, in which the country’s leader vowed to open the economy further and cut tariffs. This apparent attempt to defuse the trade dispute with the United States was well-received by the market, and likely by officials at the Federal Reserve as well. Indeed, the minutes from the March Federal Open Market Committee (FOMC) meeting showed that “a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy.”


A full-on trade war is still avoidable, but even if one occurs the direct effects should be manageable since China accounts for just 8 percent of total American exports, and the U.S. is predominantly a services-based economy. Moreover, Chinese exports to the U.S. are significantly larger than American exports to China and the services sector is not as important in China, meaning that China would have more to lose than the U.S. from an intensifying trade conflict. Based on recent price action in the market, though, an all-out trade war would be bad for equity valuations, which in turn could hurt household wealth in America and potentially result in weaker consumer spending. Further, if China started to unload some of its vast holdings in U.S. Treasury securities, that upward pressure on bond yields (higher borrowing costs) could provide another economic growth headwind. Regardless, it is still early in the negotiation process between the two nations, so volatility in the stock market may not be going away any time soon. Retirement investors should therefore continue to focus on the long-term goal of amassing wealth. Assistance with that endeavor is available through the consistent use of tax-advantaged savings vehicles, dollar-cost averaging, and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last week, the positives included that first-time claims for unemployment benefits fell back to a nearly half-century low, and the ratio of quits to layoffs and discharges rose (a sign of Americans’ confidence in the labor market). As for the negatives, mortgage and refinance applications declined, small business owner optimism softened, consumer sentiment cooled, and both household and wholesale inflation pressures in the United States firmed. This week the pace of economic data slows down but there are still a few important reports on manufacturing, housing, and retail sales scheduled to be released, along with a handful of potentially market-moving speeches by Federal Reserve officials.


**A more detailed snapshot of the U.S. economy can be found here.**

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Sources: Econoday, FRBG, Bloomberg, Wells Fargo, FRBSL

Post author: Charles Couch