August 12 – August 16 Week in Review
It was another tumultuous week for equity investors last week which included an 800 point drop in the Dow on Wednesday. Overall the S&P 500 fell 1.0%, the Dow Jones Industrial Average lost 1.5%, and the Russell 2000 fell 1.3%. The Nasdaq Composite fared slightly better, losing “only” 0.8%.
Eight of the 11 S&P 500 sectors finished lower. The energy sector led the retreat, followed by the financial sector on the back of another steep drop in U.S. Treasury yields. The lower yields, however, benefited the utilities and real estate sectors, while the consumer staples sector also showed some strength. Semiconductor stocks gained amid some hope that the U.S. and China could still work on a trade deal.
The week began with equity investors continuing to seek safety in U.S. Treasury obligations and gold on concern over global growth. The flight back to safety briefly sent the yield on the 10 year note below the yield on the 2 year note for the first time since 2007. This caused a lot of consternation among investors as that inversion has preceded each recession since 1980. The average length of time between the first inversion and the start of each recession since 1980 has averaged 18 months, with the range being as little as ten months to as long as two years.
Growth concerns were temporarily set aside on Tuesday after the White House announced that it will delay the 10% tariff rate for some items imported from China, including cell phones and laptops, until Dec. 15. That news sparked a brief relief rally in the stock market that quickly evaporated after another round of disappointing economic data from China and Germany.
As to the direction of interest rates, for the week the 2 year yield fell 16 basis points to 1.47%, and the 10 year yield fell 19 basis points to 1.54%. Yields, which fell even further earlier in the week, climbed on a report Friday that Germany may be willing to increase government spending if its economy enters a recession. Investor sentiment was boosted late in the week after a larger than expected increase in retail sales and string earnings and guidance from Walmart. Also notable last week was that the 30 year briefly dipped below 2%, an all-time low.
In other markets the U.S. Dollar Index increased 0.7% to 98.18, continuing its steady climb of late. WTI crude increased 0.5% to $54.89 a barrel after spiking higher earlier in the week.
August 19 – August 23 Economic Calendar