U.S.-China trade negotiations took a turn for the worse over the last week, as the U.S. further increased tariffs and the Chinese retaliated. Chief Investment Strategist Jim McDonald explains what this means for investors.
Renewed trade concerns helped drive equities lower, temporarily inverting the U.S. yield curve. China’s data release is expected to show healthy increases from the prior year.
A selloff in risk assets last week – driven by fading expectations for a U.S.-China trade deal – has shattered the calm after a prolonged period of low market volatility in 2019. We remain cautiously pro-risk, but see potential for further bouts of volatility in this late-cycle period. This argues for maintaining ballast in portfolios.
Market Week in Review: The U.S.-China trade war escalates. Will business confidence levels take a hit?
On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Research Analyst Brian Yadao discussed the implications for markets after prospects for a U.S.-China trade deal soured.
The rally in the domestic equity markets, which looked to be losing momentum in March, returned with a vengeance in April. An upside surprise in first quarter gross domestic product (GDP) and a stronger-than-expected first half of corporate earnings season were the primary drivers, boosting stocks across the board. The government shutdown in the early part of the first quarter had reduced expectations for GDP growth to around 2.50%, but the first estimate was significantly stronger at 3.20%. Meanwhile, following a difficult fourth quarter, earnings expectations were revised downward for the first part of 2019, only to have these muted expectations exceeded by a wide range of companies as reports rolled in across the month of April.
U.S. Treasury yields declined slightly last week after a sharp reversal in the outlook for a U.S./China trade deal. Short-maturity yields declined the most, causing the yield curve to steepen. The Federal Reserve (Fed) continues to focus on the positive, including improving U.S. economic data, easier financial conditions and an improving growth outlook in China.
Last week took investors on a roller coaster ride. The climax came at the stroke of midnight on Friday, May 10, when US President Donald Trump’s newest tariffs went into effect — a 25% toll on $200 billion of Chinese goods. Then later on Friday, the negotiations ended with no material progress, and there are no formal plans to resume talks. What’s more, China retaliated the morning of May 13 by announcing tariffs on US goods being imported to China.
U.S. equity markets fell more than 2% last week, posting their worst weekly performance of 2019. The breakdown in U.S./China trade negotiations, combined with President Trump’s announcement of new tariffs, roiled the markets. Investors also expressed concerns over broader geopolitical tensions, further dampening sentiment. For the week, technology was the worst-performing area of the market, while consumer staples fared relatively better.
With the tariff two step currently being displayed between the United States and China, it is easy to overlook two components of a late-stage economic cycle that often foreshadows the severity of the next downturn. While the downturn does not appear imminent, it is still an event that one should be prepared for as the capital market prices will price it in before the actual occurrence.
Living in Hong Kong with a view of the Chinese mainland, Capital Group portfolio manager Steve Watson has a front-row seat to the long-running U.S.-China trade dispute.
This Sunday, of course, is Mother’s Day. While the ancient Greeks and Romans celebrated motherhood regularly, in the United States the official holiday goes back just 105 years to when Anna Jarvis championed it as a way to honor “the sacrifices mothers made for their children.”
Imagine you knew exactly which stocks to pick a decade ago, the ones that would do best during the rally. What would life have been like on the way to world-beating gains. This quarterly industry report excerpt explains why even God would get fired as an active manager.