Markets, Economy

Weekly Kickstart (05/28/2019-05/31/2019)

5/28/19 8:00 AM

iStock-626627280.jpgStocks remained under pressure last week, as the S&P 500 fell by 1.17 percent to 2,826.06. That still left the benchmark index up 12.73 percent 2019-to-date, and just 4.07 percent below the all-time closing high. Trading volumes were a bit light ahead of the 3-day holiday weekend and the same conditions could be present this week, meaning that one should not read too heavily into the recent price action in the market. However, a few issues weighing on equities last week may continue to do so for the foreseeable future. For example, the minutes from the latest Federal Open Market Committee (FOMC) meeting were released on Wednesday and generally confirmed that although monetary policymakers currently see little need to raise rates this year, they also are not convinced that a rate cut is necessary. The market clearly disagrees with the latter since Fed Fund futures still imply a roughly 75 percent chance of at least one quarter-point interest rate cut occurring by yearend.

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Another headwind for equities in May has been the escalating trade war. Indeed, earlier this month a breakdown in negotiations caused President Trump to raise the tariff rate on certain Chinese goods and promise a similar hike on other imports in the future. Beijing quickly responded with its own tariff increase on U.S. goods, and a major concern for investors is that the back-and-forth retaliatory measures between the two countries will only get more severe. For now, though, the United States appears well-positioned to handle the expected fallout from intensifying trade tensions because tariffs are predominately aimed at goods rather than services, and goods account for only about a third of U.S. consumer spending. Further, just 7 percent of all U.S. exports head to China and in total account for less than 1 percent of America’s gross domestic product. Some states and industries are of course more exposed to foreign trade, and other knock-on effects are possible as well, e.g. companies may put capital expenditure plans on hold in the face of policy uncertainty. With no immediate end to the negotiations in sight, it is unlikely that volatility in the stock market will be going away any time soon. Regular investors should therefore continue to focus less on the day-to-day fluctuations in equity valuations and more on the long-term goal of amassing a large retirement nest egg. 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.

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To recap a few of the things we learned about the economy last week, the positives included that mortgage applications rose, and the number of Americans making first-time claims for unemployment benefits continued to pull back from the Easter spike. As for the negatives, existing home sales fell, new home sales declined, a gauge of regional manufacturing activity cooled, demand for U.S.-made durable goods softened, and core capital expenditures, an important proxy of overall business investment, unexpectedly decreased. This holiday-shortened week the pace of economic data picks up slightly, with a few important reports on housing, manufacturing, consumers, wage growth, and inflation scheduled to be released.

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

What To Watch:

Monday

  • U.S. Holiday: Memorial Day
  • All markets closed

Tuesday

Wednesday

Thursday

Friday

 

 

Sources: Econoday, FRBG, Wells Fargo, FRBSL

Post author: Charles Couch

Disclosures