Telemus Weekly Market Review

April 2 – April 6, 2018 

It was a losing week for the stock market and another volatile one to boot. The major indices were all over the place, rising and falling, amid a barrage of headlines that played into fears about trade wars and rising interest rates.

The whipsaw action was embodied in the behavior of the Dow Jones Industrial Average, which swung 1100 points between its low on Wednesday and its high on Thursday. On Friday, it dropped as many as 767 points before ending the session down 572 points.

All told, the Dow Jones Industrial Average declined 0.71% for the week, which made it the best-performing of the major indices. The Russell 2000 fell 1.05%; the S&P 500 dropped 1.38%; and the Nasdaq Composite declined 2.10%.

Talk of trade wars dominated the market narrative after the Trump Administration proposed a $50 billion tariff plan on Wednesday and then followed with an order to the Office of the U.S. Trade Representative on Friday to consider whether it would be appropriate under section 301 to impose an additional $100 billion of tariffs on Chinese imports.

China quickly countered on Wednesday with a proposed $50 billion tariff plan on 106 products imported from the U.S. and said on Friday that it would protect its interest at any cost if the U.S. ultimately pressed ahead with its tariff plans.

The stock market managed to overcome its trade concerns on Wednesday after NEC Director Kudlow appeased it with the reminder that these are just proposals and that it is possible no tariffs will go into effect.

That view was dampened on Friday, however, when Treasury Secretary Mnuchin acknowledged there could be a potential trade war with China. Furthermore, a remark from President Trump that the stock market might have to have a little pain as he works to protect the trade interests of the U.S. also shook investor sentiment and contributed to broad-based selling on Friday that led to declines that ranged from 1.9% to 2.3% for the major indices.

It didn’t help matters either that Fed Chair Powell toed the party line on Friday, saying to the Economic Club of Chicago that he sees further gradual rate hikes as he expects inflation to pick up. The view from Mr. Powell was not surprising, yet it was offputting for the stock market nonetheless since it reminded market participants that the Federal Reserve is still operating with a tightening bias even though volatility has increased in the financial markets and heated trade rhetoric threatens to curtail economic growth.

The latter is one reason why the market has not taken much solace of late in understanding that the first quarter earnings growth is expected to be the strongest growth in seven years. This market is looking ahead and is troubled that companies may not be able to live up to the high earnings growth expectations if the Fed keeps raising rates and trade wars break out.

Fittingly, last week’s weakest performers were some of its most economically-sensitive sectors. The information technology sector had the worst showing as investors continued to exit crowded positions in mega-cap tech leaders like Facebook, Alphabet, and NVIDIA. The industrials sector was the next worst performer followed by health care and financials.

Amazon.com was another notable stock that got hit with selling precipitated by comments from the president who said Amazon needs to pay more taxes and should be paying the U.S. Post office more for its services. Shares fell 2.9% for the week.

There was a good bit of economic data last week and it was generally weaker than expected, with the ISM Manufacturing and Non-Manufacturing Indexes, Construction Spending, Factory Orders, Trade Balance, and Nonfarm Payroll reports all coming up shy of consensus estimates.

From a headline perspective, the Trade Balance and March employment reports captured the most attention. The former showed a widening in the trade deficit to $57.6 billion in February, which was the largest deficit since October 2008. The March employment report, meanwhile, indicated nonfarm payrolls increased a disappointing 103,000 while average hourly earnings jumped 0.3%.

The employment report was a mixed bag. The key takeaway, though, is that it was neither too hot nor too cold to provide a clear basis for the Federal Reserve to re-think its outlook for monetary policy. As it so happens, San Francisco Fed President John Williams (who is an FOMC voter and will soon be the New York Fed President) said after Friday’s close that he sees three to four rate hikes this year.

U.S. government bonds strengthened Friday as a fresh round of tariff threats from the U.S. and China sent investors back to the safety of government debt. The yield on the benchmark 10-year U.S. Treasury note settled at 2.779%, compared with 2.830% Thursday.

Crude oil fell almost 5% last week on trade war concerns as well, closing at $61.95.

April 9 – April 13 Economic Calendar

  • Monday
  • TD Ameritrade IMX
    12:30 PM ET
  • NFIB Small Business Optimism Index
    6:00 AM ET
  • PPI-FD
    8:30 AM ET
  • Redbook
    8:55 AM ET
  • Wholesale Trade
    10:00 AM ET
  • Treasury Budget
    2:00 PM ET
  • Neel Kashkari Speaks
    5:00 PM ET
  • Tuesday
  • Robert Kaplan Speaks
    4:30 AM ET

  • NFIB Small Business Optimism Index
    6:00 AM ET
  • PPI-FD
    8:30 AM ET
  • Redbook
    8:55 AM ET
  • Wholesale Trade
    10:00 AM ET
  • Treasury Budget
    2:00 PM ET
  • Neel Kashkari Speaks
    5:00 PM ET
  • Wednesday
  • MBA Mortgage Applications
    7:00 AM ET
  • Consumer Price Index
    8:30 AM ET
  • Atlanta Fed Business Inflation Expectations
    10:00 AM ET
  • EIA Petroleum Status Report
    10:30 AM ET
  • FOMC Minutes
    2:00 PM ET
  • Treasury Budget
    2:00 PM ET
  • Neel Kashkari Speaks
    5:00 PM ET
  • Thursday
  • Jobless Claims
    8:30 AM ET

  • Import and Export Prices
    8:30 AM ET
  • Bloomberg Consumer Comfort Index
    9:45 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Neel Kashkari Speaks
    5:00 PM ET
  • Friday
  • Eric Rosengren Speaks
    7:30 AM ET

  • James Bullard Speaks
    9:00 AM ET
  • Consumer Sentiment
    10:00 AM ET
  • JOLTS
    10:00 AM ET
  • Baker-Hughes Rig Count
    1:00 PM ET
  • Robert Kaplan Speaks
    1:00 PM ET
  • Neel Kashkari Speaks
    5:00 PM ET

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only.  It is not intended as investment advice and does not address or account for individual investor circumstances.  Investment decisions should always be made based on the client’s specific financial needs, goals and objectives, time horizon and risk tolerance.  The statements contained herein are based solely upon the opinions of Telemus Capital, LLC.  All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.