Impeachment Inquiry concerns
Market Recap week ending 9/27/2019
US market indices moved lower last week on concerns related to an impeachment inquiry into President Trump’s dealings with Ukrainian President Zelensky and on reports that the White House is considering limiting US investment access to Chinese markets while delisting Chinese companies from US exchanges. Cyclical sectors, along with Mid-cap and Small-cap issues took the brunt of the sell-off. However, the week did provide some positive US economic data which kept US Treasuries in check. The S&P 500 lost -1% on the week while the Dow held up relatively well with a -0.4% decline. The NASDAQ and Russell 2000 were hit much harder with declines of -2% and -2.5%, respectively. The two-year note yield shed six basis points to close at 1.62%, and the Ten-year bond yield fell four basis points to close at 1.68%. Oil continued to sell off as inventory concerns out of Saudi Arabia subsided. WTI fell $2.19 or 3.8% to close at $55.90 a barrel. Gold was little changed on the week closing down a fraction at $1506 an Oz. There were no changes to our models last week.
The week started with concerns related to President Trump and his dealings with Ukrainian President Zelensky. Democrats allege that President Trump asked the foreign leader to look into Joe Biden’s son’s affairs in Ukraine or lose military aid. A formal Impeachment inquiry was launched on Tuesday and will likely take weeks to resolve itself. The markets seemed to digest the news after the Trump administration released the transcript of the alleged call. Never the less, the inquiry comes at a time that could hinder the administration's attention on trade and perhaps give China a reason to wait and see what happens rather than forge a deal in the immediate future.
The US and China are scheduled to resume negotiations on trade October 10th and 11th. The recent de-escalation between the two countries had been positive for the markets of late, but late last week a Bloomberg report suggested that the Trump Administration has been kicking around the idea of limiting US investment in China and also delisting Chinese companies that trade on the US exchanges. The news sent markets lower on Friday and cast some doubt on the upcoming trade negotiations.
It was not all bad last week. US economic data was quite constructive. Jobless claims continued to come in at historically low levels and came in better than expected at 213K. Pending home sales ticked up and came in better than expected too, at 1.6% for August. New Home sales were quite robust and came in at the best level since October of 2007 with a figure of 713k units versus the expectation for 659K units. Preliminarily data in US manufacturing also saw an uptick and showed manufacturing expanding.
Darren Leavitt, CFA Portfolio Manager & Sr. Market Analyst