August 19 - 23, 2019 Recap
Stocks Slump Amid Tariff Barbs. U.S. stocks retreated over 2.5% on Friday after China announced an additional round of retaliatory tariffs on $75B worth of American goods on September 1 and December 15 and President Trump vowed to respond accordingly. The trade escalation more than erased earlier gains in what was shaping up as a rally for the week. After Friday’s closing bell, President Trump announced he will increase tariffs on $250B of Chinese goods from 25% to 30% as of October 1 and the tariff on the remaining $300B of Chinese imports would be taxed at 15% on September 1, up from 10%.
• Weekly Performance. For the week, the Dow Industrials lost 0.99%, the S&P 500 fell 1.42%, and the tech-heavy Nasdaq Composite declined by 1.81%. Through Friday, the S&P 500 widened its pullback from its July 26 record high to 5.72%.
• New Home Sales Fall. Sales of newly built single-family homes dropped more than expected in July, falling 12.8%, the biggest monthly decline in six years to 635,000 units annualized. On the bright side, June home sales were revised substantially higher from 646,000 to 728,000, the highest level since 2007.
• Energy Sector Leads Declines. Nine of the 11 major sector groups posted losses last week, led by Materials (-3.04%), Communication Services (-2.00%), and Healthcare (-1.95%). Real Estate (-0.26%) fell the least, while Utilities (+0.20%) and Consumer Discretionary (+0.15%) outperformed.
• Treasurys Rally. Treasury prices advanced Friday as equities declined, sending the yield on two- and 10-year notes each down 7.9 basis points to 1.534% and 1.536% respectively. The yield curve between the three-month bills and 10-year notes inverted to its widest level since March 2007. For the week, the U.S. Dollar Index weakened by 0.51% and WTI crude oil futures fell 1.17% to end the week at $54.17/barrel.
Framework Trade Deal with Japan
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Tuesday, August 27: Case-Shiller Home Price Index, Consumer Confidence Index;
Wednesday, August 28: No Major Releases;
Thursday, August 29: Jobless Claims, GDP Revision, Pending Home Sales;
Friday, August 30: Personal Income, Chicago PMI, Consumer Sentiment Index.
The sale of existing homes increased 2.5% in July to 5.42 million (seasonally adjusted annual rate). Used home sales exceeded expectations and increased to a positive year-over-year growth rate for the first time in over a year. The sharp drop in mortgage rates this year has helped boost housing sales in 2019, following a slump in 2018. The upward trend in housing sales is likely to continue the rest of the year if mortgage rates remain at this level.
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The Bloomberg Barclays US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 8.25 years. This total return index, created in 1986 with history backfilled to January 1, 1976, is unhedged and rebalances monthly.
The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years. This total return unhedged index was created in 1986, with history backfilled to July 1, 1983 and rebalances monthly.
The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. Many of the subindicies of the Municipal Index have historical data to January 1980. In addition, several subindicies based on maturity and revenue source have been created, some with inception dates after January 1980, but no later than July 1, 1993. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 12.8 years. This total return index is unhedged and rebalances monthly.
The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index. However, between rebalancings, group weightings may fluctuate to levels outside the limits. The index rebalances annually, weighted 2/3 by trading volume and 1/3 by world production.
The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Introduced in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The MSCI All-Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The SMCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. The developed country indexes include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the Uninted States. The emerging market country indexes included are: Brazil, Chile, China, Colombia, Czech Republic, Eygpt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe.
The MSCI Pacific Index captures large and mid-cap representation across five Developed Markets (DM) countries in the Pacific region. With 470 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
The S&P GSCI Crude Oil Indexis a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.
The S&P GSCI Gold Index a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.
West Texas Intermediate (WTI) is crude oil produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing several other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.