Stocks tumbled this week, with the S&P 500 dropping 2.0%. The Nasdaq Composite did a little better, and the Dow Jones Industrial Average did a little worse, losing 1.1% and 3.1%, respectively. The small-cap Russell 2000 showed relative strength, but still finished lower by 1.0%.
It’s been a difficult quarter for investors, with volatility increasing dramatically, and stocks and bonds getting walloped by interest rate increase worries. But remember, nothing has fundamentally changed with regard to the current economic state, except that it continues to strengthen. And the market is simply adjusting to the realities of a more normal rate environment.
So, this week I’m including a video from Dimensional Fund Advisors that helps to put things into perspective:
And this week actually began on a positive note, with the S&P 500 jumping 1.2% on Monday, but took a turn on Tuesday when new Fed Chairman Jerome Powell testified before the House Financial Services Committee. Mr. Powell’s prepared remarks didn’t contain any surprises, calling for a continued path of gradual rate hikes. However, in the Q&A session, Mr. Powell noted that his economic projections have increased since the December FOMC meeting, prompting a negative reaction on Wall Street due to concerns that the Fed may hike rates more than expected.
The Fed forecasted three rate hikes for 2018 at its December meeting, but, in light of Mr. Powell’s upwardly revised growth projections, investors have increased their expectations for a fourth hike. The CME FedWatch Tool places the chances of a fourth rate hike at 30.7%, up from 24.4% last week. The chances of a March rate hike are at 83.1%.
Fast-forwarding to Thursday, the equity market was dealt another blow, this time from President Trump, who announced that he’ll be imposing tariffs on steel and aluminum imports – 25% for steel and 10% for aluminum. Mr. Trump’s decision prompted concerns about higher prices and retaliation from China and other trading partners.
All S&P 500 sectors finished the week in negative territory, with industrials (-3.3%) and materials (- 4.0%) being the weakest performers. The technology (-0.8%), consumer staples (-1.3%), and telecom services (-0.7%) groups exhibited relative strength, but the remaining sectors lost between 2.0% and 2.9%.
A slew of retailers reported earnings this week. TJX (TJX) rallied 7.0% on Wednesday after reporting better-than-expected earnings and revenues for the fourth quarter and raising its profit guidance. Conversely, Lowe’s (LOW) dropped 6.5% in the same session after missing Q4 earnings estimates and lowering its profit guidance for fiscal year 2019. The SPDR S&P Retail ETF(XRT) finished the week lower, but ahead of the broader market, losing 1.4%.
Source: Briefing Investor