Stocks declined on the week on news of some additional targeted tariffs towards China. China responded that it is preparing for a potential trade war. I don’t think we’re going to see a trade war, both sides have too much lose, but the concern is keeping pressure on stocks. For the week, the Dow declined 1.5% while the S&P 500 declined 1.2%.
While the markets were down this week, there was some positive economic news. The Labor Department reported there were 6.3 million job openings at the end of January. That’s the highest number on record. This follows last month’s strong jobs report which saw the economy add 313k net new jobs. The strong jobs figures could push the Federal Reserve to speed up interest rate increases this year. In the recent past, the fear of interest rate increases has caused stocks to sell-off, but that didn’t happen today. I think the market has come to terms with 2-3 interest rate increases this year and recognizes that it is an overall positive to the market and economy for the Fed to be in a position to raise rates. The Fed meets next week to discuss interest rate policy and it is largely expected that the Federal Funds rate will be increased 0.25%. Read More
The University of Michigan Consumer Sentiment survey reached a 14 year high this week. Tax cuts are increasing disposable income and should support continued consumer spending. Consumer spending makes up two-thirds of the US economy. Interestingly, people in the bottom third of incomes showed a sharp increase in sentiment, while those in the top third saw a decline. The reaction to the tariff announcement could explain part of this divergence. Lower income people, many of whom have experienced manufacturing jobs moving overseas view the tariffs as a way to improve their job situation and prospects. Whereas higher income Americans might be more concerned about higher consumer prices and the broader impact on the economy from higher taxes on goods. Read More
Oil increased 0.3% this week to close at $62.26/barrel. The yield on the 10-yr Treasury moved lower to 2.85% from 2.90% last week. The average rate on a 30-yr fixed rate mortgage moved lower to 4.44% from 4.46% a week ago. This was the first decline in mortgage rates in 2018.