Early last Friday morning when we began thinking about the topic for this memo, we thought we’d be discussing a decent week for the market and analyzing Fed Chair Powell’s comments at the Jackson Hole Economic Symposium in Wyoming. As we know however, the mood of the market changes like the weather in New England – often, and sometimes violently. While Powell seemed to thread the needle and avoid disturbing the markets – saying the Fed will do what it can “to sustain the expansion” (meaning interest rate cuts) – a “tweet-storm” by President Trump Friday morning sent the major stock market averages notably lower.
Trump tweeted that “American companies are hereby ordered to immediately start looking for an alternative to China”, after China announced new tariffs on $75 billion of U.S. imports. Later in the day, Trump responded by stating he would raise tariffs on Chinese goods and products. In short, the trade war is escalating and the rhetoric is getting hotter. Also, in the mix on Friday, the yield curve briefly inverted again (historically a reliable indicator of recession). So what was set to be a positive week, turned negative after Friday’s drop of 623 points (or 2.4%) for the Dow Jones Industrial Average, 2.6% for the Standard & Poor’s 500 Index, and 3% for the NASDAQ Composite.
For the week as a whole, the Dow dropped 1%, the S&P fell 1.4%, and the NASDAQ lost 1.8%. Looking to the week ahead, there is a trickle of earning reports due out as earnings season winds down, but Wall Street is going to be focused on the trade war, the degree to which the global economy is slowing, and when and to what extent the Fed will be cutting interest rates. Before Chairman Powell spoke Friday morning the market was pricing in a 95.8% chance of cut. Currently, the CME FedWatch Tool is assigning a 100% probability there will be at least a ¼ point cut at the September meeting.
With all of the current market volatility and headline news, we would like to reiterate a point we often make – “stay the right course”. Having a long term plan in place with an asset allocation appropriate to your risk tolerance, goals, objectives, time-frame, and specific circumstances means that an investor can withstand the ups and downs of the market! As always, call us with any questions you may have or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC