Week in Review

Week in Review: September 16, 2019

Olive Branches and Drone Attacks

U.S. equities closed the week higher, as investors breathed a sigh of relief after reports that China had exempted some U.S. products (including soybeans and pork) from additional tariffs, expressing a gesture of goodwill amid the prolonged dispute between the world’s two largest economies. In late August, equity markets plunged to nearly three-month lows after President Trump’s escalating tariff threats against China and tumbling long-term bond yields raised fears of a looming recession. However, investor risk appetite surged last week as market participants welcomed news that President Trump had agreed to delay the implementation of new tariffs on Chinese goods to October 15 from October 1. Optimism that both nations could reach a trade compromise ahead of another round of trade talks scheduled for October boosted investor sentiment. As a result, the S&P 500 closed 1.0% higher, marking its third consecutive weekly gain and inching closer to its all-time high mark set in July. In turn, the technology heavy NASDAQ Composite gained 0.9%. Meanwhile, small company stocks were the big winners for the week as the Russell 2000 climbed 4.9%.

In economic news, the latest domestic retail sales figures showed that consumer spending remains relatively healthy, underlining strength in what has been a key engine for the U.S. economy during the current expansion. Retail sales grew faster than expected in August, up 0.4%, and were up 4.1% year-over-year, driven by purchases of new cars and trucks. The relatively robust level of car sales suggests consumers are still confident in the economy, given that purchases of big-ticket items usually decline when the economy slows or when consumers become worried about their jobs. U.S. underlying consumer prices increased solidly in August, leading to the largest annual gain in a year. The Labor Department stated that its consumer price index (CPI), excluding the volatile food and energy components, increased 2.4% from last August (see Figure 1). In turn, the core CPI gained 0.3% for a third straight month, recording the biggest monthly rise in medical-care costs since 2016 and record increases in health-insurance prices. Further, we remain vigilant of possible price shocks which may impact inflation, such as a spike in oil prices. Last Saturday, drone attacks on Saudi Arabia’s oil facilities slashed the kingdom’s oil production, marking the single worst supply disruption ever and sending the price of crude oil – the global gauge of oil prices – sharply higher. While experts believe some production is likely to be back up soon, it may take weeks or even months to fully repair.

While mounting global uncertainty and trade tensions have taken a toll on the U.S. manufacturing sector and business investment, consumer confidence picked up slightly at the start of September. The University of Michigan’s preliminary index of consumer sentiment rose to 92.0, from the end-of-August reading of 89.8. And although the pace of job gains has slowed slightly in comparison to previous months, the unemployment rate remained at a historically low 3.7% in August, suggesting that the global economic slowdown isn’t driving the U.S. into a recession despite weaker signs in manufacturing. 
On the fixed income front, investors sold off U.S. government debt, sending Treasury yields higher. As a result, the yield on the 10-year U.S. Treasury note neared its highest level in six weeks. Meanwhile, the European Central Bank announced last Thursday plans of additional monetary stimulus in an effort to buoy Europe's staggering economy in the face of sputtering growth and uncertainties caused by the U.S. - China trade conflict, and Britain's expected exit from the European Union. This week, investors expect the Federal Reserve (the Fed) to cut interest rates by a quarter point on Wednesday. Fed Chairman Powell faced an unprecedented level of criticism from President Trump last week who repeatedly castigated the Fed for not cutting interest rates fast enough. President Trump even commented that Fed officials are “boneheads”, and demanded they take the fed funds rate to zero or even a negative level. Thus, investors will be paying close attention to the Fed’s comments and future monetary policy plans, which are likely to influence market performance in the coming weeks.

Figure 1: U.S. CPI Inflation

Twelve-month percentage changes

US CPI Inflation

Source: Thomson Reuters (9/13/2019)

Market Returns (USD)





Global Equities

MSCI All Country World

1.3% 1.2% 17.6% 4.0%

S&P 500

1.0% 2.7% 21.7% 5.7%

Dow Jones Industrial Average

1.6% 3.0% 18.8% 6.7%


0.9% 2.4% 24.2% 3.2%

Russell 2000

4.9% 1.0% 18.2% -6.6%


2.0% 0.3% 14.3% 2.5%

MSCI Emerging Markets

1.9% -1.9% 8.5% 3.5%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

-0.9% 0.5% 4.5% 5.9%

Bloomberg Barclays Intermediate Government/Credit

-1.1% 0.5% 5.5% 7.1%

Bloomberg Barclays High Yield Bond

0.2% 1.4% 11.5% 6.8%

JPMorgan GBI Emerging Markets Global Diversified

0.7% 0.5% 9.3% 14.6%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

3007.39 2978.71 2506.85 2904.18

Dow Jones Industrial Average

27219.52 26797.46 23327.46 26145.99

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

1.90% 1.55% 2.69% 2.97%

Gold ($/oz)

$1,488.53 $1,506.82 $1,282.49 $1,201.47

Crude Oil ($/barrel)

$54.85 $56.52 $48.04 $66.20

U.S. Dollar / Euro ($/)

1.11 1.10 1.15 1.17

U.S Dollar / British Pound ($/£)

1.25 1.23 1.28 1.31

Japanese Yen / U.S. Dollar (¥/$)

108.09 106.92 109.69 111.92