Foundations

Foundations

Weekly Market Commentary

A hectic week on Wall Street

 

Market Recap week ending 8/2/2019

It was a hectic week on Wall Street. A much-anticipated Fed rate decision, the completion of another round of trade negotiations between the US and China, and the continued announcement of corporate earnings were all in play for investors last week. The S&P 500 lost -3.1% while the Nasdaq gave up nearly- 4%. The Dow held up relatively well, posting a -2.6% decline and the Russell 2000 lost -2.9%. A flight to safety coupled with the week's news out of the Fed and Trade put a nice bid into the US Treasury markets. The 2-10 yield curve spread flattened out to 15 basis points during the week. The 2-year note yield fell 13 basis points to close at 1.71% while the 10-year yield fell 22 basis points to close at 1.86%. Gold also saw a decent bid during the week, gaining nearly $40 to close at 1458.20 an Oz. Oil declined slightly, losing $0.68 to close at $55.51 a barrel. We did have a change to the Core Satellite series of models last week. The tactical component of the models increased its defensive stance by selling out of the S&P 500 and selling out of International Real Estate. Additionally, we trimmed our exposure to long-duration bonds. The proceeds from the sales were used to increased our positions in Investment Grade Corporate debt and mid-duration bonds. Please let me know if you have any questions related to these changes.

The Federal Reserve cut the Fed Funds rate by 25 basis points and also announced that it would halt the systematic reduction of their balance sheet immediately. The rate cut was widely expected but commentary post the announcement from Fed Chairman Powell seemed to disappoint markets. The decision was described as an insurance cut and categorized as a mid-cycle adjustment. The commentary in the press conference initially hindered the probability of another rate cut. However, rhetoric from the Chairman on the following day suggested that there was still room for additional cuts if warranted. That said, yields fell significantly for the week but in very volatile trade.

Last week's trade negotiations offered very little progress. The real story in trade relations came mid-day Thursday when President Trump announced that on September 1st, the US would introduce a 10% tax on an additional 300 billion in Chinese goods. The announcement hit global markets hard.  Going into the weekend investors expect some form of Chinese retaliation.

Earnings announcements were still abundant last week but took a back seat to the Fed and Trade. Apple announced better than expected results and provided better than expected guidance for the coming quarter. On the other hand, Advanced Micro, a semiconductor company missed the marked and lowered guidance. The worse than expected results coupled with the announcement of more tariffs, hit the semiconductor sector especially hard. Still, earnings on the margin continued to come out better than expected.

 
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Darren Leavitt, CFA Portfolio Manager & Sr. Market Analyst, CFA

Dan Biagini