MCF Investment Department Market Update - May 17, 2019
By: Nick Newell, FRM
Last week’s market news was dominated by Trump threatening additional tariffs from 10% to 25% on $200B of Chinese goods.1 Both sides left D.C. last Friday without a resolution and the public left only with U.S. Treasury Secretary Mnuchin’s intentionally vague comment that discussions were “constructive.”2 Trump’s threat proved legitimate, with the increase taking effect last Friday. In response, China has now announced raising tariffs on $60B of U.S. products from previous 5%-10% levels to 25% to match, which are scheduled to begin June 1. The next public opportunity for negotiation will be the G20 summit in Osaka June 28 and the lingering dispute will continue to remain a known unknown.
As a result of these developments or lack thereof, the S&P 500 has fallen just over 4.5% from May 3 (last close prior to announcement) to Monday’s May 13 close; more than half of this drawdown occurred on Monday 5/13.3 MSCI Emerging Market Index has fallen just over 6% for this same time period.4 The direct cost to the U.S. from the increased tariffs would be 15% x $200B = $30B, a trivial amount in comparison with last year’s GDP of $20.89 trillion (not billion). Other economic indicators have been broadly positive, so the trade dispute may be a one-time setback against a fundamentally stable and growing economy.
In other news, Treasury yields have fallen as is typical in declining markets for participants seeking safer assets. Equities had a strong rebound Tuesday 5/14 and it appears to be sticking so far.5 Retail sales and industrial production reports were a little soft but not a cause for concern as these types of data are usually choppy. Big indicators to watch this week include housing starts, jobless claims, and Fed business outlook survey reports.6
1Bloomberg.com, Bloomberg, www.bloomberg.com/news/articles/2019-05-05/trump-says-10-china-tariffs-will-rise-to-25-on-friday.
2Pramuk, Jacob. “Treasury Secretary Mnuchin Says China Trade Talks Are Done for the Day.” CNBC, CNBC, 10 May 2019, www.cnbc.com/2019/05/10/chinas-liu-leaves-trade-talks-with-trump-team-in-washington.html.
3“S&P 500 (^GSPC) Stock Historical Prices & Data.” Yahoo! Finance, Yahoo!, 15 May 2019, finance.yahoo.com/quote/^GSPC/history/.
4“MSCI Emerging Markets Historical Rates.” Investing.com, www.investing.com/indices/msci-emerging-markets-historical-data.
5“U.S. Department of the Treasury.” Daily Treasury Yield Curve Rates, www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield.
6 Econoday Inc. 2019 Economic Calendar, us.econoday.com/byweek.asp?cust=us.
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 a 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.