For the market week ended Friday, August 9, 2019
Volatility in US Equity Markets spiked last week, as China devalued its currency to its lowest level in over 10 years in an escalation of the current US-China trade dispute and US interest rates dropped sharply amid growing global economic fears. Despite the seesaw price action in the markets, the S&P 500 finished the week only down 0.5%, bringing its gains for the year down to 16.4%. The Nasdaq dropped 0.6% for the week and is now up 20.0% for the year, while the Russell 2000 (small-cap stocks) fell 1.3% for the week and is now up 12.2% for the year.
Global equity markets were hit harder than US markets last week as rising fears of economic weakness outside of the US weighed on prices. Developed Markets dropped 1.1% for the week with broad weakness in both European and Asian markets. For the year, Developed Markets are up 7.9%. Emerging Markets were hit harder amid the escalating trade tensions, down 2.3% for the week to bring its gains for the year down to 1.6%.
US interest rates continued to decline as growing global economic concerns drove investors to the relative safety of US Treasuries. Interest rates fell to their lowest level in three years, with the yield on the US 10-Year Treasury touching 1.60% before closing the week at 1.75% vs. 1.85% the prior week. Investors now believe there is a 100% probability that the Fed will reduce rates by another 0.25% at its upcoming meeting in September.
Of Interest to Us...
- We are largely through the second quarter earnings reports from US companies, which generally came in better than expected. With roughly 90% of firms reporting, about 75% of companies beat earnings forecasts (higher than historical norms) by an average of 5.7%. Roughly 57% beat revenue forecasts (slightly below historical norms) by an average of 0.9%. It appears that earnings growth will come in around -0.7% for the second quarter, while revenue growth will come in around 4.1%. Tariffs were cited by about 40% of companies as negatively impacting their earnings in the quarter.