There was certainly no shortage of headlines this week, driving what appeared to be an investor tug-of-war between news from the Fed and escalating trade war rhetoric. A mostly upbeat testimony from Fed Chairman Jerome Powell helped boost markets Tuesday and Wednesday, but Trump’s more aggressive trade commentary spooked investors, causing stocks to reverse direction on Thursday and Friday. Global indices ended the week flat to modestly up. Amid all the noise, bonds and gold fell and the dollar slightly weakened versus the euro.

Weekly Returns

S&P 500: 2,802 (0.0%)
FTSE All-World ex-US (VEU): (+0.4%)
US 10 Year Treasury Yield: 2.89% (+0.06%)
Gold: $1,231 (-0.8%)
EUR/USD: $1.172 (+0.3%)

Major Events

• Monday – President Trump met with Russian leader Vladimir Putin in a controversial summit in Helsinki that sparked confusion among both sides of the aisle in Congress.
• Tuesday – Fed Chairman Jerome Powell testified in front of Congress on the state of the US economy, painting a largely positive picture, but one where downside risks remain.
• Wednesday – Google was hit with a $5 billion fine by the EU in an Android antitrust case, which claimed the company abusively used its dominance to entrench its other apps.
• Wednesday – US housing starts fell 12.3% in June, worse than expected.
• Wednesday – President Trump threatened “tremendous retribution” against the European Union if their upcoming meeting didn’t yield a “fair deal” on automotive tariffs.
• Thursday – US weekly jobless claims fell to the lowest level since 1969, beating expectations.
• Thursday – In an unusual break from historical norm, President Trump openly criticized the US Federal Reserve for increasing interest rates.
• Friday – Trump reiterated his criticism of the Fed, while also stating he is willing to increase tariffs on China to $500 billion.

Our Take

On Tuesday Fed Chairman Jerome Powell testified to Congress on the state of the US economy and expectations for future rate increases. The overall tone was positive and he stated the economy likely warrants continued gradual rate hikes. And amid all the trade war uncertainty, this was greeted enthusiastically by investors as reassurance the economy is still on track.

To be sure, we agree with much of Powell’s assessment. Of course these trade disputes could spiral into something more material, but for now the economy remains on strong footing. Corporate earnings have been largely positive, and this momentum is expected to continue. And despite recent increases, interest rates remain at historically low levels, the labor market is tight, US corporations are backed by a favorable tax environment, and US housing continues to be an area of strength.

These are solid trends that are somewhat overshadowed by the scary headlines around trade, and more recently the Trump administration’s public criticism of the Fed’s interest rate policy. How have markets reacted? Global stocks were still able to squeeze out another weekly gain, albeit a small one. As they say, stocks love to climb a wall of worry.