Trade Likely to Cast a Shadow Over Investor Sentiment and Corporate Decision Making

U.S. equities fell for the second straight week, but the damage was contained. The S&P 500 fell 0.8 percent and has now shed 2.9 percent since President Trump tweeted his intention to once again raise tariffs on Chinese imports two weeks ago. But, following a sharp fall of 2.4 percent last Monday after China announced their own retaliatory round of tariff increases, stocks managed to claw their way back to limit the pain. The declines in small cap stocks were more severe. The Russell 2000 fell 2.4 percent last week and is now down almost 12 percent from its late summer peak.

What’s the Economic Cost of a Trade Battle? Time will Tell


U.S. equities in the S&P 500 endured their worst week of the year, falling nearly 2.2 percent, as President Trump followed through on his threat to raise tariffs on Chinese imports. A fifteen percent increase, from 10 to 25 percent, on the second tranche of Chinese goods took effect on Friday, and the procedural clock began to tick on the threat to impose tariffs on the $325 billion remainder of Chinese imports. China has since announced a tariff increase of its own on U.S. imports to take effect on June 1.  

Trade Negotiations Make the Path Forward for Markets Difficult

Last week ended with investors feeling quite good about the prospects for the global economy and the possibility that corporate earnings might turn out to be better than feared. Despite some pockets of disappointment mid-week after the Fed signaled little sympathy for a rate cut, Friday’s solid U.S. labor market report helped push stock prices higher and reinforced the notion that activity may, indeed, be improving. This followed reports earlier in the week that showed manufacturing activity in China had expanded for a second straight month, although just barely, and that the Eurozone economy expanded at a faster than anticipated pace in the first quarter. Capping off the positive sentiment were rumors that a trade deal between the U.S. and China could happen as early as this Friday.

Is Recent Economic Data as Good as it Seems?

U.S. equities resumed their ascent, ending the week at new closing highs in both the S&P 500 and Nasdaq Composite. After a one week pause in which stocks fell ever so slightly, primarily due to weakness in healthcare, the rally resumed. This time it was healthcare leading the way, joined by strength in communication services, most notably Amazon after posting strong earnings. Also rebounding from previous weakness were the interest rate sensitive real estate and utility sectors, as the yield on the ten-year Treasury note slipped six basis points to 2.50 percent. The previously strong cyclical groups lost ground, including energy, materials and industrials.