What’s Up with the Market – September 2018
August Newsletter Recap:
Last month, we left off with the market putting in support and showing signs of a breakout to the upside. I said “for this rally to continue and this breakout to prove warranted, I would like to see a rotation from these high flying technology stocks into more stable companies like financials, energy and consumer staples.”
Where are the markets now?
Well the breakout occurred with the market hitting all-time highs and it hasn’t all been technology related.
The momentum of the FAANG trade has pushed Apple and Amazon to become the first two trillion dollar companies in US history but this chart may indicate that investors may finally want to take some of those technology gains and put them into those value names we have previously mentioned.
The trade war with China continues to escalate.
The big news last month surrounded renewed trade war talks (don’t miss our Trade War 101) as President Trump has once again turned up the heat on China. On Sep 17, he announced a 10% tariff on $200 billion in Chinese goods that has already gone into effect. On top of that, he said that the rate will jump to 25% on the first day of 2019. This is supposedly him giving businesses time to make adjustments and find alternative supply chains.
In addition, Trump said he will immediately impose more tariffs on over $265 billion in goods if China retaliates . However, on Sep 24th China announced new 5-10% tariffs on $60B worth of goods. Stay tuned for more on this.
President Trump sticks to his guns on trade with China.
“We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices,” the president said.
With this latest round of tariffs the total for Chinese imports subject to tariffs to roughly half the value of all goods China shipped to the U.S. last year.
Is there an end game for this trade war?
Even with all this retaliatory behaviour from the US and China, I remain cautiously optimistic that both sides will come to an agreement as markets seem to shrug off even the harshest of Trump’s recent comments.
Interest rates could be the game changer.
On the other hand, I do believe that higher rates are coming, and the Fed is the number one threat to the market rally. Higher rates could slow growth by increasing borrowing costs. Higher rates also make the bond markets and CDs look more attractive to savers who were previously forced into equities by low interest rates. Higher rates aren’t always bad for stocks as they could also come from a very healthy and robust economy. But it would be very surprising not to see some sort of “tantrum” as the market adjusts to a new, higher interest rate environment, especially if we are close to the end of the economic cycle.
All in all the markets seem to be chugging along, and I would expect to see the trend continue higher as fundamentals like strong earnings and low unemployment persist.
But as I write this, the media is reporting that Rosenstein has been fired, resigned and now just meeting with the President, reminding us just how volatile things can be with President Trump at the helm. So like I said, I remain cautiously optimistic on the market with the key word being “cautiously” due to the many potential catalysts that seem to surround the current administration.
Thanks for reading as we navigate these markets together. Please let me know if I can help with anything or answer any questions in the meantime.
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Clint Kirby - Chief Financial Strategist
Clint Kirby, DreamWork Financial Group is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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