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Weekly Market Update for August 23, 2019

by JM Hanley

The Dow was down on Friday, falling 623 points to close at 25,629. For the week, the Dow was down 1.0% (SP500 -1.4%) and year-to-date is now up 9.9% (SP500 +13.6%). The yield on the 10-year Treasury (an important interest-rate indicator) fell one basis point, closing at 1.53%.

With earnings season all but over, macroeconomic considerations took precedence.  The outlook continues to darken. Surveys of corporate management from Europe were about as expected – which is to say, they confirmed that growth on the continent is touch-and-go. More concerning was news from the US. The equivalent manufacturing survey showed production has fallen below levels consistent with a growing economy.

The deteriorating global outlook attached even more significance to Jerome Powell’s remarks at the Fed’s summer retreat in Jackson Hole.  The Fed chair acknowledged the bad news and scrapped an earlier reference to rate cuts as a “mid-cycle adjustment.” Markets now anticipate a quarter-point rate cut in September, and at least another quarter point later in the year. Monetary policy has grown extraordinarily accommodative in the US and around the world of late. But its efficacy faces the law of diminishing returns. Credit is already so cheap that lower rates won’t catalyze much more economic activity. Meanwhile, periodic inversions of the yield curve are making everybody nervous.

The most substantial burden on the global economy is America’s trade dispute with China. News from that front started the week passably and got worse. The US agreed to let tech companies supply Huawei for another three months, but not indefinitely. Then, on Friday morning, China confirmed a slate of retaliatory tariffs would go into effect on the first of September.  After the market closed, the White House announced that its own retaliatory tariffs would take effect – and that the rate of tariffs new and existing would be raised.

The trade war has disrupted global supply chains and induced caution in corporate planning. But consumer confidence has so far proven resilient. If the latest escalation rattles consumers, macroeconomic storm clouds could multiply.

The price of crude oil fell 1% this week to $54 a barrel – up 19% YTD. The oil inventory report did little to support the sector and investors’ heavy selling of cyclical industries, including commodities, was evident this week. Energy equities trailed the commodity, with domestic producers down 3% and service providers declining 4%.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.

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