It was a losing week for the equity market and another volatile one at that. The major indices were all over the place, twisting and turning amid a barrage of headlines that played into its fears about trade wars and rising interest rates.
The whipsaw action was embodied in the behavior of the Dow Jones, which swung 1100 points between its low on Wednesday and its high on Thursday. On Friday, it dropped as much as 767 points before settling the session down 572 points.
All told, the Dow Jones Industrial Average declined 0.7% for the week, which made it the best-performing of the major indices. The Russell 2000 fell 1.1%; the S&P 500 dropped 1.4%; and the Nasdaq declined 2.1%.
Talk of trade wars dominated the market narrative after the Trump Administration proposed a $50 billion tariff plan on Wednesday and then followed with an order to the Office of the U.S. Trade Representative on Friday to consider whether it would be appropriate to impose an additional $100 billion of tariffs on Chinese imports.
China quickly countered on Wednesday with a proposed $50 billion tariff plan on 106 products imported from the U.S. and said on Friday that it would protect its interest at any cost if the U.S. ultimately pressed ahead with its tariff plans.
The stock market managed to overcome its trade concerns on Wednesday after NEC Director Kudlow appeased it with the reminder that these are just proposals and that it is possible no tariffs will go into effect.
That perspective got diluted on Friday, however, when Treasury Secretary Mnuchin acknowledged there could be a potential trade war with China. Furthermore, a remark from President Trump that the stock market might have to have a little pain as he works to protect the trade interests of the U.S. also shook investor sentiment and contributed to broad-based selling on Friday.
Fed Chair Powell toed the party line on Friday, saying to the Economic Club of Chicago that he sees further gradual rate hikes as he expects inflation to pick up this Spring.
The view from Mr. Powell was not surprising, yet it was offputting for the stock market nonetheless since it reminded market participants that the Federal Reserve is still operating with a tightening bias even though volatility has increased in the financial markets and heated trade rhetoric threatens to curtail economic growth.
The week’s weakest performers were some of its most economically-sensitive sectors.
The information technology sector (-2.3%) had the worst showing as investors continued to exit crowded positions in mega-cap tech leaders like Facebook and Alphabet.
Amazon.com (AMZN) was another notable stock that got hit with selling interest. That interest was precipitated by a rebuke from the president who said Amazon needs to pay more taxes and should be paying the U.S. Post office more for its services. Shares of AMZN fell 2.9% this week.
There was a good bit of economic data this week and it was generally weaker than expected, with the ISM Manufacturing and Non-Manufacturing Indexes, Construction Spending, Factory Orders, Trade Balance, and Nonfarm Payroll reports all coming up shy of consensus estimates.
The employment report was a mixed bag. The key takeaway, though, is that it was neither too hot nor too cold to provide a clear basis for the Federal Reserve to re-think its outlook for monetary policy. As it so happens, San Francisco Fed President, John Williams, said after Friday’s close that he sees three to four rate hikes this year.
That view effectively wrapped up a tumultuous week that left the S&P 500 down 2.6% for the year.
Source: Briefing Investor