MCF Weekly Capital Market Review - August 26th, 2019

Last week, there was very little released in terms of economic indicators. Even geo-political events, at least those with large potential for market impact, were quiet. Trump provided a vague “Doing great with China”[1] update on Wednesday. Then came Friday with China announcing retaliatory tariffs on $75 billion of US goods in two rounds on September 1 and December 15, matching the implementation of the latest US combined rounds of $300 billion in tariffs on Chinese goods. China’s tariff announcement was balanced (as was Trump’s) with some optimism, insisting that it was “forced to take countermeasures” but hopes to “resolve differences” to end trade frictions. According to the White House, points of contention include cyber intrusion, forced technology transfers, intellectual property theft, and currency manipulation.[2]

The announcement appeared to be unexpected by the administration with Trump’s frustration clearly displayed on social media that morning. In a barrage of posts, Trump decried the “trillions” lost from intellectual property theft by China, called Xi (and Powell) an enemy, and ordered US companies to “immediately start looking for an alternative to China.”¹ Equity markets and Treasury yields fell in response to this re-escalation. Another round of US tariffs on China is scheduled to go into effect on September 1.

Friday also included Fed Chair Powell’s anticlimactic speech at Jackson Hole. Market participants received little insight, hearing the repetition that the Fed will “act as appropriate to sustain the expansion” along with concerns of slowing global growth and effects of trade policy uncertainty. One positive was the affirmation that the US economy is close to the Fed’s goals of price stability and full employment.[3] The next Fed decision on rates is September 18 and Powell’s comments did little to alter market expectations of another 25 basis point rate cut.[4]

The G7 summit in France ended over the weekend. Highlights focused on foreign policy tensions and potential new trade deals, national security concerns, environmental protection progress (including French protestors demanding Macron do more), and a surprise visit by the Iranian Foreign Minister. On Sunday, $20 million was pledged to Amazon countries to combat forest fires and develop a long-term plan to protect the rainforest. The summit showcased tense relationships amongst global leaders, but also provided plenty of small victories that should provide forward momentum for global economic progress.

Economic indicators to be released this week include durable goods, consumer confidence and sentiment, GDP, and personal income and outlays.

INDEX RETURNS

^[1]^{https://twitter.com/realDonaldTrump}

^{[2] https://www.cnbc.com/2019/08/23/china-to-retaliate-with-new-tariffs-on-another-75-billion-worth-of-us-goods.html}

^{[3] https://www.cnbc.com/2019/08/23/powell-jackson-hole-speech.html}

^[4]^{https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html}

^{IMPORTANT DISCLOSURE INFORMATION}

^{Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Please click here to review our full disclosure.}

^{REFLECTED INDICES}

^{S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.}

^{MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,859 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Investors cannot invest in an index.}

^{Bloomberg Barclays Global Aggregate ex-USD Index is a measure of global investment grade debt from 24 local currency markets. This multi- currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Investors cannot invest in an index.}

^{Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. Investors cannot invest in an index.}

^{S&P GSCI is a composite index of commodity sector returns which represents a broadly diversified, unleveraged, long-only position in commodity futures. The S&P GSCI is intended to provide exposure to broad-based commodities. Investors cannot invest in an index.}

^{Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed- rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass- through), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986 with history backfilled to January 1, 1976. Investors cannot invest in an index.}

^{Bloomberg Barclays 1-10 Year US Government Inflation-Linked Bond Index tracks the 1-10-year inflation protected sector of the United States Treasury market. Investors cannot invest in an index.}

^{Bloomberg Barclays US Treasury 1-3 Year Index measures the performance of public obligations of the US Treasury with maturities of 1-3 years, including securities roll up to the US Aggregate, US Universal, and Global Aggregate Indices. Investors cannot invest in an index.}

^{Bloomberg Barclays US Treasury Bellwethers 3 Month Index is an unmanaged index representing the on-the-run (most recently auctioned) US Treasury bill with 3 months’ maturity. Investors cannot invest in an index.}