A relatively upbeat week in the US Equity Markets was derailed on Friday, as China announced retaliatory 5-10% tariffs on $75 billion of US products, prompting President Trump to order US companies to seek alternatives to China. This news overshadowed an important speech by Fed Chairman Powell in which he indicated that the Fed would do whatever it could to help sustain US economic growth. The US-China trade escalation caused US markets to decline notably, with the S&P 500 down 1.4% for the week to reduce its gains for the year to 13.6%. The Nasdaq fell 1.8% for the week and is now up 16.8% for the year, while the Russell 2000 (small-cap stocks) dropped 2.3% for the week and is now up 8.3% for the year.
Global equity markets actually increased for the week, benefiting from the fact that much of the world markets had already closed before tensions between the US and China escalated on Friday. Developed Markets increased 0.9% for the week to bring its gains for the year up to 7.2%. Emerging Markets rose 0.6% for the week and are now up 1.0% for the year.
US interest rates continued to decline last week, as the yield on the US 10-Year Treasury touched new three-year lows at 1.48% before closing the week at 1.54%. This compares to 1.56% the prior week. The yield curve inverted briefly again last week, and closed the week with a mere 0.01% positive yield spread between the US 2-Year Treasury and 10-Year Treasury.
Of Interest to Us
An important measure of US manufacturing activity, the Markit Purchasing Manufacturing Index, dropped sharply in August to a reading of 49.9, the first time it has fallen below 50.0 since September 2009. Note that a reading above 50 suggests the manufacturing economy is expanding, and below 50 suggests the manufacturing economy is contracting. At the same time, surveys of New Orders from manufacturers in mid-August suggested a notable rebound in orders from weak July numbers. US-China trade tensions remain the primary culprit for volatility in activity.
for the week ending 8/23/2019
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