Volatility Continues – For How Long?
All major US markets finished in the red, down between 1% and 3% for the week ending March 2, 2018. Most of the damage happened on Thursday March 1st as President Trump announced upcoming Tariffs on Steel and Aluminum Imports. The Dow Jones Industrial Average finished down over 400 points for the day.
As with any announcement, people need time to sort out the potential impact to our economy which will impact our securities markets. Earlier this morning, there was information that President Trump may drop the tariffs if a ‘fair’ NAFTA deal is signed. What the market does NOT like, is uncertainty on issues that may impact every person in the United States.
One of my concerns is always trade. Innovation has fostered new technologies which in turn has made us a “Global” oriented economy. Having equitable trade agreements with our trade partners is essential to enabling United States businesses to equitably compete. It is equally important to make changes to these agreements with discerning and careful thought of the consequences, and in discussion and negotiation with our partners. Unilateral decisions absent of crisis or threat of a crisis should be avoided.
Is the Correction a W or a V?
In our February 20th blog, we questioned whether the 10% correction would recover quickly in the shape of a V or if we would re-test the lows and possibly form a W, as with some corrections. So far this the year, the S&P 500 rose 199 points from 2673 to 2872, fell 291 points to 2581. As of last Friday, the S&P 500 was up 110 points from the low of the year so far. Not quite a W however it shows the concern of the stock market.
During the past week we heard from the Fed’s new Chairman Jerome Powell who hinted at four possible rate increases this year. Many economists and market participants were thinking three. This had little impact on US interest rates, as they ended the week pretty much where they started with the 10 year US Treasury @ 2.86%.
Paul’s Take – Going Forward
This week marks the 9 year anniversary of the economic and market recovery. There is much talk about how much longer the recovery can continue.
The only significant reports due out this week are the ISM Non-Manufacturing report today and on Friday the Nonfarm Payroll report for the month.
We’ll also be watching for further information on trade and certainly what impact and action this will have with our trading partners. Comments may move stock and bonds in either direction.
What will be the end result?