Trade War Concerns

March 5, 2018

Market volatility continued again last week as Fed Chairman Jerome Powell addressed Congress making his first public comments since taking office. His remarks affirmed his commitment to gradually increasing rates while his optimistic view of the economy raised concerns that the FOMC might increase rates four times in 2018(expectations are for three rate hikes this year). In addition, President Trump’s pledge to impose tariffs on foreign steel and aluminum increased concerns by investors that a trade war could negatively impact global growth. This threat could pressure stocks in the near-term, but we feel the global economic expansion remains intact.

The S&P 500 and the DJIA declined 1.98% and 2.97% respectively. Internationally, the MSCI EAFE index was off 2.86% and emerging markets were down 2.80% as several European countries threatened retaliatory tariffs. Rates on the 10 year U.S. Treasury declined slightly from 2.88% to 2.86%. Oil moved lower for the week closing at $61.24 a barrel.

Economic news for the week was mixed – housing sales in January slowed to 593k missing estimates; durable goods declined 3.7%m/m missing estimates of a 2.0% decline; 4Q GDP was revised down to +2.5% from its preliminary estimate of 2.6%; ISM mfg. PMI which measures the manufacturing environment had a reading of 60.8 surpassing estimates. This week look for reports on Friday on February job growth and wage growth which could strengthen the Fed’s resolve in raising rates.

“No nation was ever ruined by trade.” – Benjamin Franklin