Weekly market update
As we close the books on June, the second quarter and the first half of 2018, the Dow is down about 1%, the S&P 500 finished up 2.6% and the Russell 2000 was up 7.6%. The big winner though was the NASDAQ, which turned in an impressive 9.3% return YTD and had its best quarter since Q4 of 2013.
2018 started off in an extraordinary fashion. The Dow and S&P had their best month (January) since March 2016 and for the NASDAQ, it was the best month since October 2015.
As I said earlier in January, the year started off as a turbo edition of 2017 with the usual suspects leading the charge—technology, healthcare and consumer discretionary stocks.
And it wasn’t just here in the U.S. —stocks around the globe were in rally mode during January—Germany and Japan were on fire.
And then February happened. The Dow and S&P broke a 10-month winning streak. For the NASDAQ, it was the first losing month in eight. The FED hiking interest rates, inflationary data and trade tariffs were, and still are, the biggest threats to stocks even as geopolitical tensions have eased.
And today—the markets are completely driven by the daily headlines—trade tensions rise (stocks go down) —trade tensions ease (stocks go up). Last week, according to CNBC, the Dow has fallen 1% or more 17 days this year. CNBC finds eight of those 17 down days were sparked by news of increasing tariffs or trade restrictions from the Trump administration or retaliation to those actions by trading partners. And the total move on those days: down 3258 Dow points.
These tit-for-tat trade conflicts between the U.S. and China, the world’s largest economies, have increased Wall Street anxieties that tensions could evolve into a full-blown trade war that could ripple through global markets.
The ECB is growing increasingly concerned that a looming trade war could derail the Eurozone’s recovery and complicate the Brexit. Furthermore, manufacturing is looking especially prone to a slowdown in coming months, with companies citing trade worries and political uncertainty as for their biggest concerns.
Despite these concerns, the NASDAQ and the Russell 2000 set new all-time highs last month.
On the economic front here in the U.S., the data has maintained a good bit of strength and the strongest piece of data—jobs and unemployment—we find ourselves with more job openings than people to fill them. But across the ponds—global growth is slowing—as the “global synchronized growth story” is beginning to fall apart.
One stock story—you all have heard me talk about Amazon and companies have been Amazoned, well last month, Amazon announced they bought a small company called PillPack. This caused the traditional pharmacy chains to get hammered—CVS, Rite-Aid and Walgreens. In the same day, Amazon announced it is starting its “last mile delivery service” where Amazon helps small delivery firms get started delivering packages, making FedEx and UPS get hammered. As far as how to survive in Amazon’s world, other retailers should just ask Jeff Bezos what he wants them to do and then go off and just do that—if they want to survive. It’s incredible that one company has become such a disruptor.
So, as we head into the second half of the year, expect that the markets will still be headline driven with respect to tariffs and trade concerns. We will certainly be watching and listening to the FED on more interest rate hikes to come. We will also be keeping our eye on any “soft” patches in the economic data. We also have to keep an eye on the geopolitical landscape, although this has taken a back seat to the “trade wars” discussions.
So, there is much to monitor and we will be keeping you posted. Join me next week for the next installment of the weekly market update.
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
July 5, 2018
