Hurricane Florence, Trade Tensions, and Political Strife
- The major stock market indices all advanced on the week, as trade-related headlines and Hurricane Florence dominated the news
- The tech-heavy NASDAQ led the way with a gain of 1.4%, followed by the broad S&P 500's increase of 1.2%, and the blue-chip DJIA's gain of 0.9%. Even the large-cap, international MSCI EAFE moved up 1.3%
- Hurricane Florence monopolized the news, as one of the largest storms in decades to slam into the Carolinas made landfall late Thursday night. Although still a very dangerous storm, the fact that it was downgraded from a Category 4 to a Category 1 helped the markets remain mostly positive late in the week in addition to keeping crude futures largely unchanged – they had been up nearly 4% earlier in the week but fell back as the storm weakened
- The White House confirmed reports that it has proposed a new round of trade talks with China — an offer that was well received by Beijing. President Trump then tweeted that China needed these trade talks resolved more than the U.S.
- Related to trade talks, China's major stock index, the Shanghai Composite, fell 0.8% this week, hitting its lowest level since very early 2016
- Apple unveiled three new iPhones – the iPhone Xs ($999), iPhone Xs Max ($1099), and iPhone Xr ($749) – and investors pushed Apple's stock price up 1.2% on the week
- The Fed is expected to raise rates by 25 basis points at its September meeting, with the CME's Fed Watch Tool placing the chances of a rate increase at just about 100%
Weekly Market Performance
Stocks Head Higher Amid Possible Trade Talks
Stocks finished the week with gains, as investors felt positive that trade challenges between the U.S. and China might soon be resolved.
At the beginning of the week, investors were worried about the next round of tariffs on about $200 billion of Chinese imports; but by mid-week, news that Treasury Secretary Steven Mnuchin was leading a new round of trade negotiations with China was received as a positive step and welcomed by Wall Street. Then news of an invitation from the U.S. to China to sit down and discuss trade policy further boosted investor sentiment.
President Trump then tweeted: "The Wall Street Journal has it wrong, we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet?"
According to the Wall Street Journal, "...the Chinese government over the weekend was completing plans for a top economic policy officeial to visit Washington in the next few days to lay the groundwork for a trip by Vice Premier Liu He the following week. Mr. Liu is expected to see Mr. Mnuchin and possibly Mr. Trump. But Chinese officials said that if Mr. Trump carries out his plans to announce the fresh tariffs early this week - as people familiar with his plans said over the weekend that he would - then those talks could get scuttled."
SCOTUS Drama Unfolds
According to the Wall Street Journal, "A woman who has accused Supreme Court nominee Brett Kavanaugh of sexual assault when they were teenagers went public with her name for the first time on Sunday, injecting immediate uncertainty into Republican's push to confirm the next high-court justice quickly." Due to the Republicans narrow one-vote majority, and possible deflection by Mr. Jeff Flake (R-Arizona) this news may be the one thing that pushes back this Thursday's confirmation hearing as Mr. Flake, among others, would like to hear what Ms. Christine Blasey Ford has to say about her encounter with Mr. Kavanaugh.
Technology Heads Higher
The technology sector was among the top-performing groups this week, gaining 1.8% on the week and rebounding from last week's dismal performance.
All told, ten of eleven S&P 500 sectors finished in positive territory with cyclical sectors performing well and financials finishing lower by 0.4%.
Large-cap stocks outpaced small-caps and oil prices were volatile, with the price of a barrel of crude oil touching above $70 midweek before retreating as Hurricane Florence weakened.
DOL Indicates CPI Data has Slowed.
The U.S. Department of Labor released August consumer price index data which showed prices rising 2.7% from a year earlier – the first month this year that year-over-year inflation has slowed. The Fed's next meeting is scheduled for September 25–26 and the markets are still betting on a rate increase – assigning the chances of an increase at just about 100%.
Around the World in 10 Seconds
- The pan-European STOXX Europe 600 Index edged higher
- Italy's FTSE MIB Index rose more than 2%
- The Nikkei 225 Stock Average jumped 3.53%
- The TOPIX Index and the TOPIX Small Index both rallied for the week
- China's Shanghai Composite Index declined 0.8%, its third–straight weekly loss, while the large–cap CSI 300 Index dropped 1.1%
Small Biz Optimism Rips Higher
The National Federation of Independent Business ran the following headline: "Small Business Optimism Shatters Record Previously Set 35 Years Ago."
The NFIB also released the following statement:
"The NFIB Small Business Optimism Index soared to 108.8 in August, a new record in the survey’s 45-year history, topping the July 1983 highwater mark of 108. The record-breaking figure is driven by small business owners executing on the plans they've put in place due to dramatic changes in the nation's economic policy."
The August survey showed:
- Job creation plans and unfilled job openings both set new records.
- The percentage of small business owners saying it is a good time to expand tied the May 2018 all-time high.
- Inventory investment plans were the strongest since 2005 and capital spending plans the highest since 2007.
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