U.S. stocks finished the week modestly lower, and bond yields fell to their lowest level in three years, while volatility remained elevated because of escalating trade tensions between the U.S. and China. Global markets reacted to an unexpected drop in the value of China's currency, which was viewed as a retaliatory response to the recently announced tariffs on Chinese goods scheduled to take effect in September. Chinese officials later sought to reassure markets that they don't plan to embark in a currency devaluation campaign, calming investors. Our view remains that some form of an agreement or compromise can and will be reached, but not soon. The back-and-forth trade tactics will likely continue to stoke market volatility and pullbacks as we advance. However, we think the outlook is still positive based on resilient economic expansion, modestly rising corporate profits, and still-low interest rates.
Going to Need a Bigger Boat?"Pete and Repeat are in a boat. Pete jumps out. Who's left?" Children have been using that one to drive their parents mad for years. The markets have been stuck in the same boat for over a year as well. Trade tensions, an inverted yield curve, market volatility, and repeat are in the boat. The first three have periodically jumped out, but you-know-who is left.
So what should investors do now? First, don't jump ship. It's far more difficult to reach your financial goals if you're swimming versus sailing. There will come a time to batten down the hatches a bit as a recession emerges and the bull market cycle is exhausted, but we don’t think those conditions are looming. Second, get a bigger boat. Cruise ships are less battered by waves than canoes. In this case, a bigger boat isn't about portfolio size. It's about having a portfolio that is properly balanced and diversified. You wouldn't load all your cargo on one end of your boat because you'd raise your risk of tipping when conditions get choppy. Similarly, make sure your portfolio isn't overloaded to one side by rebalancing your equity/fixed-income blend and allocating your investments across an appropriate combination of asset classes.
Craig Fehr, CFA
Sources: 1. Bloomberg, total return of the Barclays U.S. Aggregate Bond Index. 2. Bloomberg, total return of the S&P 500
|Dow Jones Industrial Average||26,287||-0.7%||12.7%|
|S&P 500 Index||2,919||-0.5%||16.4%|
|10-yr Treasury Yield||1.74%||-0.11%||-0.95%|
Source: Bloomberg, 08/09/19. *5-day performance ending Friday. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.
The Week Ahead
The second-quarter earnings season will continue to wind down next week with less than 3% of companies in the S&P 500 reporting results. Economic data being released in the U.S. include inflation on Tuesday, retail sales on Thursday, and consumer sentiment on Friday.
The Weekly Market Update is published every Friday, after U.S. markets close.
The Dow Jones Indexes are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use.
All content of the Dow Jones Indexes © 2017 is proprietary to Dow Jones & Company, Inc.
The Dow Jones, S&P 500 and Barclays Aggregate Bond Indexes are unmanaged and are not meant to depict an actual investment.
Past performance does not guarantee future results.
Diversification does not guarantee a profit or protect against loss.
Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.
Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.
This information is approved for use with the public.
It is intended for informational purposes only.
It is believed to be reliable, but its accuracy and completeness are not guaranteed.
Get instant quotes for your favorite companies and mutual funds.