Do Tariffs, Interest Rates & Political Turmoil Matter?
Wow, the stock markets and now the bond market (at least temporarily) are moving higher at the same time. Does it matter that no perceived progress has been achieved on the Tariff issue? The spread between the 2 year and 10 year US Treasury yield, as of last Friday was .21%, with the 10 year yield actually decreasing since 6/30/2018 and the 2 year yield increasing. President Trump, Cohen, Manafort news is front and center, however not budging the market down.
So why is the US stock market continuing to move upwards? Corporate profits grew by over 20% in 2017 and are expected to surpass that figure in 2018. Profits are estimated to grow by over 10% in 2019. Unemployment at all-time lows and the consumer is spending their cash without any concerns.
Last week the major US Market Indexes were higher, in addition, the international markets showed a little life, with the MSCI EAFE Index up 1.05% and the MSCI EM Emerging Market Index up 2.51%.
On the bond side of the fence, the Barclays Aggregate Index finished .28% higher for the week.
INTEREST RATES & TARIFFS
The 10 year US Treasury began 2018 with a yield of 2.41%, shot up to over 3% and now is hovering around 2.82%. The 2 year US Treasury started 2018 yielding 1.89% and now yields 2.61%. The slope between the 2 rates has narrowed from .52% to start the year to .21% last Friday. In my opinion, interest rates are suggesting that the Tariff issue is real, because absent of tariff talks, I think longer rates would be trending higher. For now this is positive for the stock market, bond market, mortgage rates, corporate lending, etc.
An important question to be considering, if the Tariff issue continues, when will this additional cost start to weigh on corporate earnings and impact stock pricing? It has been suggested the impact could start to be impacted in the 4th quarter of 2018. AS ALWAYS, TIME WILL TELL!!
- In June 2018, there were 5.50 million Americans that had their employment end either by quitting, being laid off or getting discharged from work. In June 2018, there were 5.65 million Americans hired into new jobs. Separate from those statistics, there are still 6.66 million job openings yet to be filled!!
- Did you know that United States Senators had 13 weeks of vacation during the calendar year 2018? 3 MONTHS!!
- The S&P 500 began in 1923 by being called the “Composite Index” by tracking a small number of stocks. In 1926, the Composite increased to 90 stocks. It wasn’t until 1957, that the Composite Index expanded to include 500 stocks.
Question of the Week
Rank in order, which Generation had the largest percentage of the United States Population as of 2017.
a) Baby Boomers, Millennials, Generation Xers
b) Generation Xers, Baby Boomers, Millennials
c) The Silent Generation, Millennials, Baby Boomers
d) Millennials, Baby Boomers, Generation Xers
Answer to Last Week’s Question of The Week!
The question was: “Which 3 major countries in the world maintain the TOP CREDIT RATING from each of the 3 major credit rating agencies?”
a) Germany, Canada, China
b) Sweden, Germany, United States
c) China, Sweden, Germany
d) Canada, Germany, Sweden
e) Japan, Sweden, Canada
The Answer Is –
d) Canada, Germany, Sweden