- On May 13, 2019
- commentary, community, Economy
Cornerstone’s Week on Wall Street
Highlights for the week:
- Stocks had their worst week of the year as trade negotiations failed to result in a deal
- Global stocks fell over 2% led by Tech (-3.4%) and Industrials (-2.7%)
- We remain optimistic that some sort of trade agreement will be reached that provides clarity for markets
Equity markets fell more than 2% last week, the worst of the year, as trade negotiations with the Chinese delegation broke down. President Trump took to Twitter and accused the Chinese of backing out of previously agreed-upon compromises and decided to move forward with increasing tariffs on $200 billion of Chinese imports to 25% from 10%. He also threatened the possibility of slapping 25% tariffs on the remaining roughly $300 billion of imports, though stated he had not committed to a decision. Beijing hit back and announced 25% tariffs on $60 billion worth of U.S. imports further escalating tensions.
We’ve shown this chart before, but find it timely given all the headlines on trade. Goldman Sachs conducted a worst-case-scenario analysis on a full-scale trade war with China, and how GDP would be affected. The result? A paltry 0.1% impact on our GDP.
The risk of a trade war has always been about confidence. Markets hate uncertainty, which the trade tensions are exacerbating, but the real impact to the economy appears to be muted. We think the reaction in the market has been overdone. There are other knock-on effects we’re monitoring; increasing input costs could augment inflation and reduce profit margins, but in many of the earnings calls we’ve monitored, management already accounted for a prolonged trade skirmish in their guidance. We will continue to monitor the economic and market data and look for opportunities to take advantage of temporary dislocations.
Earnings season winds down as the volume of releases drop off significantly. Notable reports include Wal-Mart (WMT), John Deere (DE), Nvidia (NVDA), Alibaba (BABA), Take-Two Interactive (TTWO) and Cisco (CSCO). Earnings results have largely come in more positive than expected. With 450 companies reporting results, average sales for S&P 500 companies grew 4.8% year-over-year, while earnings-per-share (EPS) grew 1.7%. On the economic docket, we get releases on Import and Export prices, Small Business Confidence, Retail Sales and Industrial Production.
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