September began with across-the-board declines in response to uncertainties related to trade tariffs with China and the NAFTA negotiations with Canada. Last week the Dow Jones Industrial Average led the markets with a fractional 0.19% loss; the S&P 500® Index declined 1.03%, the Nasdaq fell 2.55% and the Russell 2000® Index lost 1.58%.
On Wednesday, trade negotiations between the U.S. and Canada resumed but the parties had not reached an agreement as the week ended; the pressure builds for an agreement by the end of September. President Trump has threatened to move ahead with the bilateral agreement with Mexico; Congress, though, which must approve any agreement, clearly prefers a trilateral deal that includes both Mexico and Canada. Over the weekend there were developments that the US and Canada may be days away from announcing a trade agreement so stay tuned as this story unfolds.
Shortly before the end of Thursday’s deadline for public comments on an additional $200 billion on Chinese tariffs, Apple urged the Administration not to apply an additional $200 billion in tariffs on Chinese imports. The letter stated the company’s concern that the tariffs would result in lower U.S. growth, higher prices for U.S. consumers. President Trump suggested Apple move manufacturing jobs back to the US and they would avoid the tariff drag.
Many believe that China would respond by imposing increasingly more difficult conditions for U.S. companies doing business in China. One example of the complexity of the tariff standoff involves the African swine fever; an outbreak of the deadly pig virus has appeared in six Chinese provinces. The illness, which is highly fatal to pigs, is controlled through quarantine and eradication. In response to the resulting drop in domestic production, China is turning to countries other than the U.S. to make up the shortfall in domestic production. The likely scenario involved increased pork exports to China from Europe, Brazil and other countries; these, in turn, will look to imports from the U.S. to cover their domestic demand for pork. The result: lower U.S. sales to China; increased sales to other countries. This scenario is consistent with commentaries from shipping companies that tariffs will shift trade to other countries with limited overall impact on the global markets.
Favorable economic news continues; second quarter productivity increased 2.9%, the best performance since 2010. In addition, manufacturing production rose to 61.3% and consumer confidence remains high with good employment opportunities. In August, employers added 210,000 jobs, and the unemployment rate fell to 3.9%.
Overall, the markets performed well during the summer months; investors approach the fall season, and mid-term elections, with some hesitation. The Technology sector underperformance weighs on the markets as the rotation from high-valuation growth stocks to more undervalued companies proceeds; also, the FAANG stocks reflect some concern that the government may seek to lessen their perceived market dominance.
Trade-related events will likely contribute to greater market volatility; and, while the near-term impact of these events remains difficult to anticipate, most analysts anticipate that negotiated resolutions will evolve over time.
Source: Pacific Global Investment Management Company
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
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Wall Street Journal Editorial Board 9/7/2018 Most headlines from Friday's August jobs report concerned the 2.9% increase in wages over the last 12 months, the healthiest raise in some time. That figure was probably overstated due to a weak August 2017 falling off the 12-month comparison, but othe...
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Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!
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