Investors Look Past Trade Risks as Stocks Gain Ground
President Trump’s proposed trade tariffs dominated most of the financial headlines last week, but investors looked past the negatives to bid up stock prices. The S&P 500 Index rose 3.6% last week.1 Half of that gain came on Friday, following a strong labor market report that showed jobs increases but stable wages.1 For the week, industrials, financials, technology and materials were all up over 4%, while utilities lagged.1 Treasury yields also rose last week in the face of stronger economic data.1
- Preferred securities remain the only sector delivering a positive total return for February.
- High yield municipal bond yields were relatively unchanged last week and in February.
- High yield and investment grade corporate bonds underperformed other fixed income sectors.
Weekly Top Themes
- Higher tariffs could potentially damage economic growth. Donald Trump’s proclamation of a 25% tariff on imported steel and a 10% tariff on aluminum contributed to political uncertainty. It drew sharp criticism from Republican leaders in Congress, played a role in Gary Cohn’s departure from the White House and raised the possibility of retaliatory action from other countries. We believe such tariffs are effectively taxes that can drive a wedge between producers and consumers, and are more likely to hurt economic growth and jobs creation than they are to help.
- February’s jobs report points to economic acceleration. Payrolls growth showed an increase of 313,000 jobs, the highest level since June 2016.2 In addition, the overall labor force grew by 806,000, which kept unemployment at 4.1% and wage growth low at 2.6% year over year.2 On balance, the data showed that labor supply is currently keeping pace with labor demand, which should contribute to economic growth without causing significant price pressures.
- Manufacturing data also pointed to solid growth levels. The Institute for Supply Management’s manufacturing index hit its highest level since 2004, while the nonmanufacturing index also surprised to the upside.3
- A more competitive U.S. economy should help narrow a growing trade gap. The U.S. energy renaissance, narrower wage disparity between the U.S. and China and the effects of U.S. corporate tax reform should all help make the U.S. economy more dynamic and competitive.4 This, in turn, could help narrow the U.S. trade deficit as a percentage of U.S. gross domestic product.4
- Investor sentiment has improved dramatically over the past month. One month ago, markets were roiled by a surge in wages, worries about rising bond yields and geopolitical uncertainties. While those fears haven’t vanished, investors have been remarkably sanguine in reaction to last week’s economic data and political news.
1 Source: Morningstar Direct, Bloomberg and FactSet.
2 Source: Labor Department
3 Source: Institute for Supply Management
4 Source: Cornerstone Macro
Why should I register?
- You get full access to all content in the expansive library.
- You can follow topics that interest you and save content for later.