Week in Review

Week in Review: July 2, 2018


Conflicting messages on U.S. trade policy continued to weigh on markets last week which more than offset positive news at home and abroad. The NASDAQ was the worst performer last week, sliding 2.5% while the S&P 500 declined 1.3%. 

Trade concerns flared up early in the week when headlines suggested the President was considering invoking the rarely-used International Emergency Economic Powers Act (IEEPA) of 1977 to impose restrictions on investment in U.S. technology, specifically on China. By mid-week, the President reversed course and endorsed legislation spearheaded by the Treasury Department that would bolster the existing framework to protect U.S. technology. Further, reports and a leaked copy of legislation surfaced that the President was considering a de facto withdrawal from the World Trade Organization (WTO). 

It is uncertain whether or not the White House will pursue the draft legislation and whether it would be adopted into law. However, investors appear to be considering more scenarios for the discussion of U.S. trade policy. We think the more likely scenarios are more moderate that the worst case for now. 

Ongoing trade worries offset the good news that the Federal Reserve gave its blessing to a meaningful increase in dividends and buybacks for the country’s largest banks. For the first time since the great recession, the Fed allowed dividends to exceed 30% of profits (previously considered a “soft cap”) and total payout (dividends and stock buybacks together) of 99% on average. The Fed’s approval was based on results of its annual stress tests that banks above a certain size have been subjected to since the financial crisis. According to these results, banks remain sufficiently well-capitalized even under a worst-case scenario for the economy and the stock market. Given the increase in dividends banks should be of increasing interest to yield-oriented investors. 

There were positive developments on the political front in Europe. German Chancellor Angela Merkel’s coalition government previously appeared on the verge of collapse. Merkel has been under increasing pressure to crack down on the flow of immigrants into Germany, with her interior minister all but threatening mutiny on the German government’s open-door policy. By the end of the week, she emerged from a two-day meeting with her European counterparts, Spain and Greece. Italy was not included; a disproportional share of immigrants fleeing Africa and the Middle East enter Europe through Italy. Given the softening in European economic data over the last few months, political stability for Europe’s largest economy was a positive development.

This week, some of the potential market-moving catalysts we will be focusing on are: 1) Friday’s payroll report, including its reading of unit labor costs and 2) any signs that the $34 billion in U.S. tariffs on Chinese imports scheduled to go into effect Friday will be either delayed or avoided altogether. Unit labor costs are in focus because there are numerous indications that cost pressures and bottlenecks are increasing in the wholesale channel, and core PCE, the Fed’s preferred measure of inflation, came in last week at 2.0% (up from 1.8% in April), in line with the Fed’s long term objective. This was the highest reading in six years.  

Market Returns (USD)





Global Equities

MSCI All Country World

-1.2% 0.5% -0.4% 10.7%

S&P 500

-1.3% 3.4% 2.6% 14.4%

Dow Jones Industrial Average

-1.3% 1.3% -0.7% 16.3%


-2.4% 6.6% 9.4% 23.6%

Russell 2000

-2.5% 7.8% 7.7% 17.6%


-1.0% -1.2% -2.7% 6.8%

MSCI Emerging Markets

-1.5% -8.0% -6.7% 8.2%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.6% 9.7% 0.5% 2.2%

Bloomberg Barclays Intermediate Government/Credit

-1.4% 11.8% -0.6% -4.6%

Bloomberg Barclays High Yield Bond

0.1% 0.4% 0.0% 7.3%

JPMorgan GBI Emerging Markets Global Diversified

0.1% 0.8% 0.1% 0.5%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

2718.37 2754.88 2673.61 2419.7

Dow Jones Industrial Average

24271.41 24580.89 24719.22 21287.03

10-Year U.S. Treasury Yield (Constant Maturity)

2.85% 2.90% 2.40% 2.27%

Gold ($/oz)

$1,252.60 $1,270.56 $1,302.80 $1,245.51

Crude Oil ($/barrel)

$74.15 $68.58 $59.42 $47.37

U.S. Dollar / Euro ($/)

1.17 1.17 1.20 1.14

U.S Dollar / British Pound ($/£)

1.32 1.33 1.35 1.30

Japanese Yen / U.S. Dollar (¥/$)

110.76 109.97 112.69 112.18