Tariffs and Interest Rates…

Tariffs and interest rates are at front and center. Now that Q3 earnings reporting season is winding down, without question the two remaining catalysts for these markets between now and year-end are  tariffs and interest rates. It’s been a long time since we have seen the swings that are going on right now in the stock market. Investor’s and trader’s alike are attached to every headline or tweet pertaining to the current trade war between China and the U.S. and whether or not the Federal Reserve will take its foot off of the pedal. The growing tensions between China and the U.S. regarding tariffs did abate late Friday when President Trump tweeted that China does want to make a deal. This was enough to rally the markets on Friday afternoon, but not enough to get the the key indexes out of the red on the week. On the week, the Dow Jones Industrial Average (chart) closed at 25,413, the S&P 500 (chart) closed at 2,736, the Nasdaq Composite (chart) closed at 7,248 and the small-cap Russell 2000 (see chart below) finished the week out at 1,527.

With the aforementioned looming catalysts on the horizon the big question is will we get a year end rally? My feelings are we may only need one of these catalysts to come through for a potential year-end rally. If China and the U.S. can agree upon more favorable terms to the imposed existing tariffs and/or actually withdraw some of the existing tariffs, we may have a shot. Not to say interest rates aren’t important, but relatively speaking interest rates still remain historically low. Even if the Federal Reserve raises rates in December, I still think that a China U.S. deal would be enough for a rally as we close out 2018. The G20 summit is just two weeks away and let’s hope some sort of deal can come forward out of the summit. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

A Long Overdue Correction!

It was a spooky time for the equity markets in October as stocks experienced a long overdue correction. You have to go back seven years to have a month that sold off in the way the markets behaved in October. Yes, historically October has been one of the most volatile months of the year. The problem with historical data over the past several years is most of the time history has NOT repeated itself. Stocks have been on a tear for years breaking record after record. In fact not that long ago all of the major indexes had set all time record highs. Fast forward to today and we find the Dow Jones Industrial Average (chart) down almost 7% from its recent all-time high, the S&P 500 (chart) actually fell at one point over 10% from its all-time high finishing the month of October down 8%, the Nasdaq Composite (chart)  is down over 10% from its recent all-time high and the small-cap Russell 2000 (see chart below) is off over 13% from its all-time high recorded on August 31st of this year. So I think it is safe to say most of the market is in correction mode.

Next question, is this a healthy correction for the markets and will stocks find their bottom here or could this be the start of our first bear market in a decade? I guess the answer depends upon who you ask. I think it is too early to call out that a bear market is in the making, but one thing is for sure, we have not seen sustained volatility as we have witnessed recently in a very long time. As long as the trade war rhetoric continues to spew out of Washington and as long as the Federal Reserve keeps its foot on the gas pertaining to interest rates, I think the wild swings and volatility will continue. Oh yea, there is also this small event next week called the “mid-term elections” which should also play a key role in continuing vol. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz