7/20/18 – Stocks Largely Unchanged

Stocks had a volatile week, but ended largely in line with last week. Earnings continued and Trump made two concerning market comments, but stocks largely shrugged off the headlines. For the week the Dow increased 0.2% while the S&P was unchanged.

The Trump administration this week stated it was willing to put tariffs on all the goods/services we import from China. Since we have such a large trade imbalance with China, China can’t effectively retaliate with additional tariffs, but they still have many levers to pull in this fight. This appears to be additional negotiation, but at some point, we need to dial back the tariff talk and focus on increasing trade. The problem with tariffs and concerns around the trade imbalance is they assume the world is a zero-sum game. Meaning, if one side wins, then another side definitionally has to lose. I view trade completely opposite. It is a win-win for everyone. If one company, industry, country, etc can produce a higher quality product for a lower price, that frees up other companies, industries, countries to consume more and focus on what they can most effectively produce. We don’t all grow fruits and vegetables in our backyard because farms can more efficiently produce food for the masses. The same is true for global trade. Read More

Trump also made comments about the Federal Reserve and interest rate policy. The Fed operates independent of the political system and Presidents typically don’t try to influence, or comment on, interest rate policy. Trump aides said the President isn’t happy with the Fed continuing to raise interest rates, fearing it will derail his other economic plans. I think the Fed has generally done a good job of slowly raising interest rates and attempting to return us to a more normal interest environment. It hasn’t worked exactly as planned, and longer-term rates aren’t following the short-term rates higher, but the Fed  is attempting to keep the economy from over-heating and helping savers in the process. The aides added the President understands the Fed operates independently, but I’d still prefer he let the Fed do its job without political commentary. Read More

Oil declined this week, decreasing 0.5% to close at $70.31/barrel. The yield on the 10-yr Treasury moved higher, closing at 2.839% from 2.823% last week. The average rate on a 30-yr fixed rate mortgage ticked lower to 4.52%, from 4.53% last week.

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