Equities largely ignored any risk tied to President Trump’s summit in Singapore. Equities rose Monday in anticipation of the meeting and again on Tuesday. There was a brief selloff Wednesday after Fed Chairman Powell took a more hawkish tone on future rate hikes, and another Friday due to fears of a trade war between the U.S. and China. U.S. small cap stocks were able to stay positive for the week, with large caps flat and international stocks down. Commodities were also lower on a pullback in oil prices.

Weekly Returns

S&P 500: 2,779 (0.0%)
FTSE All-World ex-US (VEU): (-1.0%)
U.S. 10 Year Treasury Yield: 2.93% (-0.02%)
Gold: $1,280 (-1.5%)
EUR/USD: $1.161 (-1.4%)

Major Events

• Monday – In an unprecedented in-person meeting in Singapore, President Trump sat down with North Korean leader Kim Jong Un to discuss denuclearization and other negotiations.
• Tuesday – A federal judge ruled that AT&T could move forward with its $80 billion acquisition of Time Warner.
• Wednesday – The U.S. Federal Reserve raised rates for the second time in 2018, setting the stage for two more hikes before year end.
• Thursday – The European Central Bank stated it will end its bond buying program in December, but would hold rates steady through summer of 2019.
• Thursday – World Cup 2018 officially kicked off, with the first match between host country Russia and Saudi Arabia.
• Friday – The White House announced it would move forward with tariffs on $50 billion of Chinese goods, warning it would impose additional tariffs if China retaliates.

Our Take

It was a busy week underpinned by multiple story lines. It kicked off with the highly anticipated meeting between President Trump and North Korea’s Kim Jong Un. For all the hype and fanfare, nothing definitive was put in place and markets mostly shrugged it off. Both sides went home claiming success, but in reality the negotiations have only begun. It will likely be years before any true assessment of success can be determined.

Perhaps more impactful was global central bank activity, where the U.S. Federal Reserve raised rates by another quarter of a percent, and the ECB announced it will end its bond buying program in December. The U.S. Fed also signaled it is likely to accelerate rates increases, penciling in four total hikes in 2018, up from the three it projected in March.

So what does this mean? After nearly a decade long bull market where the Fed almost always surprised slightly to the dovish side, things are clearly different under Powell. While a quarter point one way or another really doesn’t change the big picture, investors have to accept that the accommodative central bank period which largely drove this bull market is effectively over. That doesn’t mean the economy can’t continue to grow, but companies will have to meet high earnings expectations while facing modestly higher borrowing costs.

Finally, the week was punctuated by a White House decision to proceed with $50 billion in tariffs on goods from China, reigniting fears of a broader trade war between the two nations. As we’ve said in the past, trade wars are never good for economic growth, but it’s too early to tell whether this current spat will escalate into something much larger. For now, it is still a relatively small piece of the global economy.