Weekly Review 9.4-13.4.2018

The market fell with no bottom in sight on Friday. All-in-all, now, the S&P 500 and the Dow Jones have gone some 48 days – not including Friday – without hitting a new high. That’s its longest barren stretch since 2013. We’re sure you remember those days when a new high was almost inevitable, in fact you’d be surprised if the market hadn’t hit a new high. Well that’s far from the case, Trump having stoked a trade war with what seems to be no light at the end of the tunnel. Many are saying that Trump needs to sit down at the negotiating table, Jamie Dimon, CEO of JP Morgan Chase, for one, stating clearly that Trump has to sit down with China and explicitly tell them what he’d like – and hear their response. The present reality, though, seems to be far from that, neither side sitting down for constructive talks but rather engaging in retaliatory, biting tariffs.

Late Thursday, Pres. Trump said that he had instructed the U.S. Trade Representative to identify another $100 billion that could be subject to tariffs. To add more shivers down investors’ spines, on Friday the National Economic Council Director, Larry Kudlow, stated that to date the U.S. approach towards China has been moderate. Coupled with the trade scare, the domestic numbers coming out of the U.S. weren’t exactly cheery. Far beneath the consensus of 170,000, the number of new jobs in March came out, according to the Bureau of Labor Statistics, to 103,000. On the positive side, the unemployment rate stayed put at a 17-year low of 4.1%. Also on the economic front, the ISM Manufacturing and Non-Manufacturing Indexes, Construction Spending, Factory Orders, Trade Balance, and Nonfarm Payroll reports all came out beneath the consensus.

As for rate hikes, the Fed’s new Chief, Powell, had what to say on Friday: “The FOMC’s patient approach has paid dividends and contributed to the strong economy we have today.” He also noted that this tack has mitigated the risk of “an unforeseen blow to the economy.” Though many an economist project 4 hikes this week, Powell gave no hint of that happening. Seeing no current risk at present that the market will overheat, he commented, “The absence of a sharper acceleration in wages suggests that the labor market is not excessively tight.” As for the question on everyone’s mind, in a moderated Q&A session, Powell said that it was too early to gauge the effect the tariffs would have on the economy.

The S&P 500 ended the week off 2.19%. The best performing sector last week, though, was Consumer Staples which ended up 3.05%. IT was the biggest loser, down 2.3%, investors continuing to leave megacap tech stocks the likes of Alphabet and Facebook. Amazon (AMZN), as we noted a number of times, was in the spotlight, after Trump lambasted the company’s practice of using the services of the U.S. Post Office at a discounted rate. AMZN slipped 2.9% on the week.

One stock to continue watching this coming week is Tesla. Last week it ended up 14.5%, making it the company’s best week since February 28, 2014. Essentially, the stock ended a 5-week losing streak, rebounding from the 12% plunge the week before. With it all, last week the company managed to restore the market’s faith after it announced that it wouldn’t need to raise debt or equity this year. The stock, though, has underperformed over the last 12 months, down 0.2%, while the S&P 500 is up 11%, the blue-chip Dow up 16%.

Weekly Summary: The Dow traded off 0.7%, making it the best performing of the major indexes. The S&P 500 fell 1.4%, the NASDAQ declining 2.1%. The Russell 2000 fell 1.1%.

As noted above, trade wars were what drove the market lower. This past week it was first the Oval Office’s $50 billion tariff plan proposal, capped off with an order to the Office of the U.S. Trade Representative on Friday to examine the feasibility of another $100 billion in tariffs. On Wednesday, China retaliated with a $50 billion proposal of its own, espousing on Friday that it would fight fire with fire, protecting its interests regardless of the cost. Also contributing to Friday’s selling was Trump’s statement that the market may have to suffer some pain: “I’m not saying there won’t be a little pain, but the market has gone up 40 percent, 42 percent so we might lose a little bit of it. But we’re going to have a much stronger country when we’re finished.”

For some closing words, something vital to remember is that the market will weather this storm. Buffett famously recommended that if you’re buying a low-cost index for retirement purposes, when the market falls, that’s the time to double down and put more money in. All-in-all, the $150 billion of exports (note that the tariffs have not yet gone into effect and may not go into effect), represent less than 1% of the U.S. GDP. The ultimate deal might be much easier to swallow or digest. In fact, we may never see tariffs, though that could also be a long shot. Likewise, in brief, the numbers are good overall. Over 200 thousand monthly jobs were created in the U.S. on average over the first quarter of the year – and unemployment is at a 17-year low.

With that said, don’t flinch if we see more volatility; the Dow did move over 3,000 points last week! The average daily move in the market this year was 3 times its counterpart last year. The U.S. stock market has climbed 31% over the last 2 years about 370% (including dividends) since March ’09, meaning that you shouldn’t be too quick to lose faith. If you just got in recently, we understand your hesitations but if you keep your finger on the market’s pulse, as soon as the “temporary” shock this trade war represents ultimately subsides, we could see a massive rush to new highs. Like we’ve said time in and time out, don’t try to catch a falling knife, but don’t be so quick to throw in the towel if you’re going long.

Have a great trading week!