US Stock Markets Ended June 22, 2018

Last week, disappointing equity returns can largely be distilled down to one word, tariffs. The S&P 500 returned -0.87%, the Dow Jones Industrial Average returned -2.03%, and the NASDAQ Composite returned -0.68%. Interest rate sensitive sectors tended to outperform more cyclical sectors. Trade tensions between U.S. and China ebbed last week. President Donald Trump outlined expanding tariffs on $200b in additional goods if China took retaliatory measures against the initial U.S. tariffs on $50b of goods that start in early July. Predictably, Beijing accused President Trump of starting a trade war and threatened equivalent retaliation. Of note, the U.S. exported $130b worth of goods in 2017, so if China were to equally retaliate on $250b worth of goods, they would either need to increase the tariff rate that the U.S. is threatening, or risk coming up short on tariff revenue. China could decide to use other potential trade levers, such as selling some or all of their U.S. Treasury stockpile or devaluing their currency. Both options could potentially achieve similar trade effects. President Trump remained tariff busy on Friday, threatening a 20% tariff on European car imports if the EU doesn't augment their existing tariffs on U.S.-made autos. As risks of a trade war grow, returns are generally worse for large-cap names, which tend to have more foreign exposure; compared to small-cap names, which tend to have more dollar exposure. The large-cap S&P 500 index has returned 7.20% since April 2nd, the day President Trump formally proposed tariffs on Chinese trade, compared to the small-cap S&P 600 index which has returned 13.97%. Intel Corp. had a busy week after their now ex-CEO Brian Krzanich resigned while admitting to a consensual relationship with another worker at the company, which violated company policy. Intel announced interim CEO Bob Swan would run the company while they search for a replacement. Starbucks Corp. saw its shares tumble over 9% after announcing poor Frappuccino sales and disappointing global comps. Overall, strong macroeconomic fundamentals can overcome geopolitical risks even if investors require higher risk premiums.
Posted on Monday, June 25, 2018 @ 7:41 AM

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.