Weekly Market Commentary, June 19, 2018

June 19, 2018  | By Robare & Jones

The Markets

Deal or no deal?

Last week opened with heightened trade tensions between the United States and its allies. It closed with the United States imposing new tariffs on $50 billion of Chinese goods. The Chinese declared it was the start of a trade war, reported Financial Times.

U.S. markets largely ignored the potential impact of trade wars on multiple fronts. Barron’s reported the Dow Jones Industrial Average, which includes companies that are vulnerable to tariffs, moved slightly lower. However, the Standard & Poor’s 500 Index shrugged off the possibility of trade wars, and the NASDAQ Composite gained more than 1 percent.

While Barron’s has written the largest risk to the U.S. stock market is the possibility of global trade wars, it appears many investors believe tariffs are a negotiating tactic. Barron’s reported:

“The market’s apparent indifference suggests it doesn’t see these tariffs as the reincarnation of Smoot-Hawley, but just the latest in President Trump’s negotiating tactics. Moving away from his denunciation of Kim Jong-un as “Little Rocket Man” inviting “fire and fury” by missile launches, Trump last week declared the threat from North Korea neutralized. Similarly, many professional investors view the bluster on tariffs as part of Trump’s negotiating tactics, rather than the start of an actual trade war.”

News that monetary policy is becoming less accommodating in certain regions of the world didn’t have much impact on markets either. Reuters reported the Federal Reserve raised its benchmark rate 0.25 percent last week. The European Central Bank is ending its bond-buying program and gave notice it expects to begin raising rates next summer. The Bank of Japan is still easing.

There was a lot of red ink in Asian emerging markets. China’s Shanghai Composite finished the week lower, as well. However, stock markets in Canada and Mexico finished the week higher.

 

 

Data as of 06/15/2018 1-week YTD 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 0.0% 4.0% 14.3% 10.1% 11.1% 7.4%
Dow Jones Global ex-U.S. -1.0 -2.6 8.3 3.4 3.8 0.4
10-year Treasury Note (Yield Only) 2.9 NA 2.2 2.4 2.2 4.2
Gold (per ounce) -1.0 -0.9 2.5 2.9 -1.5 3.8
Bloomberg Commodity Index -2.5 -0.5 8.4 -4.4 -7.7 -9.1
DJ Equity All REIT Total Return Index -0.7 -2.0 0.3 7.5 7.9 6.9

S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Download Market Data Table

 

 

Economic News

 

On Wednesday, the central bank raised the benchmark interest rate by a quarter of a percentage point to a range of 1.75 percent to 2 percent. The much-expected rate hike and announcement also included information suggesting Fed governors are more inclined to raise rates two more times this year. Markets reflected the news as federal funds futures went from a 50 percent to 58 percent likelihood of two more rate hikes before year’s end. If both increases are implemented, they would push interest rates up to a range of 2.25 percent to 2.5 percent. One more rate hike has been fully priced into the market for quite some time; however, two increases have not been. The accompanying chart shows the two-year Treasury yield, which indicates interest rate hikes push rates higher.

 

Source: www.Bloomberg.com June 2018

 

Corporate News

AT&T completed its acquisition of Time Warner, Inc. just two days after a federal judge ruled against the U.S. Department of Justice’s attempt to block the deal. The DOJ could have appealed but decided to allow the merger. The ruling shows the court’s willingness to allow large players to shift their business models for the future, which is changing rapidly for many industries, particularly media and entertainment. The news quickly made the battle for 21st Century Fox’s assets more interesting. Both Comcast and Disney are expected to bid aggressively as the entertainment industry adjusts to confront the threats of Netflix and other disruptors.

 

Fun Story

http://www.powerlineblog.com/archives/2018/06/scalise-makes-the-play.php
A year after an assassination attempt against the U.S. House GOP baseball team left him badly wounded, Congressman Steve Scalise returned to this year’s game against the House Democrats and successfully threw out the lead-off batter at first base. Never had both teams been happier for an out to be recorded in a game.

 

 

Newsletter Sources

https://www.ft.com/content/e04a2368-70a3-11e8-92d3-6c13e5c92914 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_FinancialTimes-No_Great_Terror_in_Markets_Despite_Trade_War_Fears-Footnote_1.pdf)

https://www.barrons.com/articles/tariffs-nukes-rates-more-sound-than-fury-1529108154 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_Barrons-Tariffs_Nukes_Rates-More_Sound_than_Fury-Footnote_2.pdf)

https://www.barrons.com/articles/how-investors-can-protect-themselves-in-a-trade-war-1528912117 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_Barrons-How_Investors_Can_Protect_Themselves_in_a_Trade_War-Footnote_3.pdf)

https://www.reuters.com/article/us-japan-economy-boj/boj-to-keep-policy-unchanged-focus-on-causes-of-weak-prices-idUSKBN1JA38J

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_other (Click on U.S. & Intl Recaps, “Central banks, tariffs – a busy week,” then scroll down to the market recap chart) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_Barrons-Global_Stock_Market_Recap-Footnote_5.pdf)

http://creativity-online.com/work/volkswagen-jump-on-the-wagen/54786

https://www.ft.com/content/9ce1425c-6caf-11e8-852d-d8b934ff5ffa (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_FinancialTimes-World_Cup-Applying_Economic_Theory_to_Predict_the_Winner-Footnote_7.pdf)

https://ftw.usatoday.com/2016/02/best-sports-quotes-about-winning