The S&P 500 fell 2.9% on Wednesday, the second occurrence this month, and erased previous gains for the week. The index is down about 6% from highs reached in July. Emerging Markets continue to lag and are down more than 24% from their high set back in January 2018. Gold continues to be one of the best performing assets as it benefits from the big drop in real yields.
Markets have been all over the place this week. The “place” in this context meaning down. The S&P 500 Index saw its worst day this year on Monday, trading down 3%. A presidential tweet last Thursday precipitated the decline in equity prices. The tweet announced plans to impose 10% tariffs starting September 1 on $300 billion in Chinese exports.
The S&P 500 fell 1.3% on the week with the bulk of the drop following the Federal Open Market Committee (FOMC) interest rate decision. Domestic small caps outperformed large caps on the week, but foreign equities underperformed. The dollar rallied, gold dropped, and the Barclays Aggregate Bond Index eked out a small gain.
Second quarter earnings reports continued to come in this week with 30% of S&P 500 companies reporting. Things are looking better than expected. Earnings growth for the period has been less negative than expected. Not positive, just less negative. The reports show earnings contraction of 0.1%. This is 5.1% better than expected.
The Consumer Price Index (CPI) number for June came in this week. The month-over-month price increase was higher than expected at 0.3%, excluding food and energy. The previous month’s CPI numbers have been pretty anemic. This is the largest increase in core CPI in the last 18 months. The expectation was for June’s number to be the same as May’s – 0.1%.
There was a major milestone this week as the S&P 500 Index briefly crossed the 3000 mark. The positive returns come on the heels of investors expecting the Federal Reserve to cut rates. Fed Chair, Jerome Powell, indicated in his Capitol Hill testimony on Wednesday the Fed was ready to cut rates as appropriate to sustain the expansion.
The S&P 500 rallied 2.1% on this shortened week. Small caps advanced 2.9% while emerging market equities gained 1.7%. Bond yields continue to move lower with the 10-year Treasury hitting its lowest level since 2016. The G20 saw the resumption of trade talks between the United States and China and what appears to be a more friendly tone.