Global markets were mostly down for the week amid concerns of an intensifying trade war. Markets broke their losing streak and rebounded a little bit on Wednesday as Federal Reserve Chairman Jerome Powell signaled strength in the economy when he laid out a path for continued rate raises. In the S&P 500, only the Real Estate and Utilities sectors had positive performance for the week, with the Materials, Industrials and Energy sectors realizing the largest losses.

Weekly Returns

S&P 500: 2,754.88 (-0.89%)
FTSE All-World ex-US: (-2.43%)
US 10 Year Treasury Yield: 2.90% (-0.7%)
Gold: $1,269.42 (-0.8%)
EUR/USD: $1.165 (+3.4%)

Major Events

• Monday – Global stock markets are mixed amid growing concerns of a trade war, Audi CEO Arrested in Emissions-Cheating investigation
• Tuesday – Global markets, especially those in Asia drop sharply as President Trump threatens tariffs on an additional $200 billion worth of Chinese goods; Verizon, AT&T and Sprint agree to end data sharing agreements
• Wednesday – Fed Chairman Jerome Powell makes the case for continuing gradual rate increases, stocks rebound following three straight days of losses, President Trump signs an executive order ending the separation of immigrant children and their parents
• Thursday – Energy shares fall as OPEC and Russia begin two-day meetings, Dow announces that GE will be dropped from the index
• Friday – US markets finish the day mixed as oil prices jump after OPEC agrees to boost output

Our Take

We started the week lower due to continuing trade war tensions and significant pushback against the practice of separating families of immigrants at the US/Mexico border. The industrials and materials sectors led the decline of the S&P 500 as concerns about the cost of imported raw materials and finished products grew amid threats of additional tariffs from President Trump and President Xi Jingping.

We continue to believe this rhetoric and tactics are designed as part of multiple negotiations, and that there is little appetite for an exchange of meaningful tariffs from the US, China or anyone else. That said, as threats increase, some tariffs go into effect, and deadlines draw nearer, the chances of miscalculation increase. It does seem there is somewhat higher risk of policy which could dent the global economy than there was a week ago. The market is quite adept at weighing the probabilities of various outcomes in close to real time, but it doesn’t know the future any more than any individual. In relation to China, there have been significant intellectual property violations for some time now, and it probably does make sense to take a tougher stand. Hopefully, and most likely in our view, a situation that meaningfully impacts corporate earnings or inflation will be avoided. In volatile and uncertain markets, a diversified portfolio with a disciplined rebalancing strategy is a great tool to manage risk and take advantage of bumpy markets along the way.