In many respects, it is hard to recall a week in recent memory as eventful or bifurcated as the one just completed. For all the noteworthy data points, earnings releases, and developments, performance at broad index-level was perceptibly average. The Dow and S&P logged gains of roughly +0.5% each, but beneath the surface, performance among sectors and individual stocks was extraordinarily diverse. The technology sector for example was negatively impacted by the pummeling of heavyweights such as Facebook and Twitter following release of those companies’ respective quarterly earnings and can be blamed for the tech-heavy Nasdaq concluding the week down -1.1%. At the same time, the more tangible and traditional economy enjoyed a positive bump with the headline that the US and key international trading partners in Europe reached verbal agreements in principal to back away from tariffs and restrictive trade policies in what is one of the most globally integrated industries of automobile manufacture. Amid all the trade-war talk, might it be that when all is said and done we actually end up “free-er” trade than before any of the hostile rhetoric began 6 months ago? That is one non-consensus perspective that is beginning to gain some traction following the positive surprise last week.
The S&P500 marked time for the week ending July 20, perhaps a more normal experience amid a season where the calendar cannot be counted as a friend to investors. The fact that the markets are behaved however might be surprising when considering what seems to be a continued escalation of trade tension between the Trump administration and the rest of the world. Arguably, the exchange of words and proposed trade adjustments are difficult to dismiss as only threats; at this point it would seem more accurate to suggest an actual trade war is already in progress; a development that would be expected to slow long-term global economic progress all other things equal while at the same time raising prices (definition of stagflation). Still, diving beneath the surface of what the S&P500 might tell us, Dow theorists – who view to the transportation sector as a indicative signal for the broader economic pace – might find some consolation with the notable outperformance of the transportation based constituents when compared to the relative performance of the industrials last week (both groups outperformed the S&P as a whole last week). This offers a contrast with what was being observed in the recent 4-week period and even YTD to a lesser pronounced extent.
For the first time since early March, the S&P500 managed to move back above the level of 2800. This is a notable achievement against a backdrop of noisy headlines that include an escalating international trade war and a Federal Reserve board that seems to be saying it remains committed to tightening monetary policy at a pace faster that what its own longer-term view of the economy would call for. Yet while domestic markets are behaving kindly, international charts (both economic and financial markets) can only be characterized as weaker.
Combining the two commentary thoughts within Nvest Nsights this quarter, there are two watch points: the Fed tightening until something breaks, and tariffs until the market shakes. Of these two, the former worries us the most, longer-term. We are historically reminded about 1984 and 1994 – strong economies and slow markets to be followed by 1985 and 1995. Maybe 2018 (strong economy and slow market) is the bridge for 2019 when stocks advance faster than the economy. Keep watchful and stay invested. We encourage you to review the full articles contained in our quarterly newsletter below. The full printer-friendly document can be downloaded here: NVEST NSIGHTS Q2
TARIFFS UNTIL THE MARKET SHAKES
The US economy is still growing and will enjoy its 10th anniversary in July. Shortly, it will become the longest expansion on record. Its progress helped unemployment reach its lowest in 18 years, at 3.8%. And, the second quarter should produce double-digit earnings growth again, for the 3rd consecutive quarter. So far, the US economy and corporate earnings provide the underlying fundamentals to support the current bull market growing older (since 3/9/2009 or 112 months, or 9.3 years). US consumer confidence remains solid which is important since consumers drive about 70% of the US economy.
Did you ever write and share your “family love letter?” It’s probably safe to say that each of us is aware of tragic situations where a loved one died at too young an age, maybe suddenly and unexpectedly. These experiences are shocking, and it is natural to catch yourself wondering how those closest to the deceased will be cared for or work through the situation. Loved ones often find they are ill-prepared to attend to many aspects of another’s life.
On the topic of estate planning, we are regularly encouraged to plan properly for a sudden incapacitation and/or death. Unfortunately, the focus begins and ends with the execution of proper documents, titling of assets, and naming beneficiaries to various financial accounts. Often overlooked however, is ensuring that appropriate family members and decision makers can access adequate information about their loved one’s assets, liabilities, and intentions. And, even if deliberate thought was given to these matters, is information available and quickly accessible?