July 29 – August 2 Week in Review
The stock market sold off last week with the bulk of the losses coming after Fed Chairman Powell’s remarks on Wednesday and President Trump threat on Thursday to impose a 10% tariff rate on $300 billion of Chinese goods. The S&P 500, down 3.1%, and the Nasdaq Composite, down 3.9%, pulled back sharply from last week's record highs. The Dow Jones Industrial Average and Russell 2000 also had fared poorly, down 2.6% and 2.9% respectively.
Nine of the 11 S&P 500 sectors finished lower with seven sectors losing at least 3.0%. The consumer discretionary and information technology sectors led the losers, while the utilities and real estate sectors, benefiting from the rally in the bond market, ended the week with gains.
The trade sensitive semiconductor and transportation stocks also succumbed to heavy selling pressure last week. The Dow Jones Transportation Average dropped 3.7%, and the Philadelphia Semiconductor dropped 6.6%. Disappointing guidance from Advanced Micro Devices also weighed on the semiconductor group.
Investors already knew the week was going to be eventful. Earnings were in full force, highlighted by upbeat results and guidance from Apple. Also U.S.-China trade talks wrapped up in Shanghai, albeit with little progress and the July employment report showed another decent gain in nonfarm payrolls.
Still, none of these stories appeared to stir much conviction among market participants. Stocks did fall noticeably Wednesday after Fed Chair Powell described the July rate cut as a "mid-cycle adjustment," although much of that decline was erased as investors regrouped to the idea of low rates and a suggestion that monetary policy could still accommodate another rate cut.
However all that changed on Thursday when President Trump's tariff threat reignited trade and growth concerns that sent stocks and U.S. Treasury yields sharply lower for the balance of the week.
Aside from the obvious drop in equities, the flattening of the yield curve was also a discouraging development for investors. The spread between the 2 year yield and 10 year yield narrowed to 15 bps from 21 bps last week. The 2 year yield fell 16 basis points to 1.71%, and the 10 year yield fell 22 basis points to 1.86%.
In other markets WTI crude ended the week at $55.74 and the U.S. Dollar Index increased 0.1% to 98.10, briefly hitting a two-year high before pulling back following the tariff news.
August 5 – August 9 Economic Calendar