Weekly market update

timex market

You remember how it goes—it takes a licking and keeps on ticking. I mean look at what we have endured this year—trade tensions with China, North Korea tensions, Middle East, falling rates, recessionary cries, but we just keep pushing higher.

The major averages turned in another winning week with the Dow climbing 1.65%, the S&P 500 up 1.02% and the NASDAQ up 0.94%. The S&P 500 and the Dow finished just below all-time highs in a week that says the U.S and China are playing nice over trade.

Last week, China announced they would not impose any new tariffs on U.S. agricultural goods and President Trump announced he would delay the tariffs set to kick in on October 1st, causing investors to breathe a sigh of relief.

Trade wasn’t the only game in town. Data on the economy, since my last market update, helped to cool recessionary fears. First, we got a strong retail sales number—that’s the consumer alive and well. Next, we got more benign inflation data while jobless claims fell even more. I really don’t know how much lower they could go. The University of Michigan Consumer Confidence reported at 92.0 vs. est. 90.8 after 89.8 the prior month—once again, the consumer is feeling it.

Across the pond, ECB President Mario Draghi, front-ran the FED on cutting rates. The ECB cut key interest rates and are restarting their bond-buying stimulus program to help the slowing economy—we’ll call this “QE4Eternity”.

Last week we saw a concerted move out of growth stocks and into value names. There is nothing wrong with building a defensive portfolio in light of what could be another coming storm. Growth stocks, sometimes called momentum stocks and low volatility stocks, all of a sudden fell out of favor and those stocks that have been beaten down, and some left for dead, came alive in big fashion. Small and mid-cap stocks finally got back in the game, but the value names performed much better than the growth names. Some are saying this “grand rotation” could be the fuel to keep pushing the markets higher.

By now you’ve probably heard about the attack on two Saudi Arabian oil facilities. This sent the price of oil soaring, some 12% higher. The U.S. is putting the blame squarely on the Iranians and says they are “locked and loaded” when they confirm—OH BOY! The last thing we need is a flare-up in the Middle East—and I think this is far from over.

So, this week, we have our FED on deck with a rate cut expected, but not a sure thing—and with trade tensions easing—this is a Biggy. The President has been calling for a huge rate cut, trying to pressure the Federal Reserve to “keep up with the ECB”, so we’ll see what happens on Wednesday, but whatever they do will not be more important than what they say may be coming. We will also be monitoring this escalation of tensions in the Middle East and see what plays out, so stay tuned and we’ll keep you posted.

Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC

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