Domestic markets fell last week due to negative trade news and declining tech stocks, with the S&P 500 and Dow both breaking their multi-week winning streaks. Meanwhile, the NASDAQ posted losses for 4 days in a row for the first time since April and experienced its worst September start since 2008.[i] Overall, the S&P 500 lost 1.03%, the Dow dropped 0.19%, and the NASDAQ gave back 2.55% for the week.[ii] International stocks in the MSCI EAFE also declined, losing 2.89%.[iii]
The Cboe Volatility Index (VIX), which can help gauge market fears, increased 15.8% last week.[iv] This increase matches what often occurs during September, when volatility returns after waning during the summer months. In fact, since 2007, volatility has been above average in September.[v]
Of course, the change from one month or season to another isn’t enough to trigger market losses and rising volatility. Let’s analyze what drove these experiences last week.
- Trade tension escalated between the U.S. and China.
The U.S. is getting closer to resolving trade issues with Mexico, Canada, and the European Union¾and the countries may unite against China’s trade approach. As a result, the likelihood of calming the trade dispute between the U.S. and China is fading.[vi] Last week, President Trump said he was prepared to add tariffs to another $267 billion in Chinese goods. These tariffs would be in addition to the $200 billion that may launch soon, which one expert said could reduce the S&P 500 by 5%.[vii]
- Tech stocks dropped.
Last week, the technology sector declined by 2.9%.[viii] Tech has performed better than any other sector this year and has been a market leader for 3 years. But concerns about increasing regulation—with a focus on social media companies—weighed on investors’ minds last week.[ix]
- Wage growth increased.
The latest jobs report surpassed expectations, with the economy adding 201,000 jobs in August. Year-over-year wage growth also rose more than expected and hit its fastest pace since 2009.[x] This wage increase contributed to stock losses, because it could mean that 2018 will have 2 additional interest rate increases¾with more on the horizon for 2019.[xi]
Last week certainly provided data and headlines for investors to digest. But the job market, economic fundamentals, and market remain strong.[xii] For the moment, we’ll continue to review the data we receive and seek new ways to help you prepare for what lies ahead.
ECONOMIC CALENDAR
Tuesday: JOLTS
Thursday: CPI, Jobless Claims
Friday: Retail Sales, Industrial Production, Consumer Sentiment
[i] https://www.cnbc.com/2018/09/07/us-markets-jobs-report-and-data-in-focus.html
[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[iii] https://www.msci.com/end-of-day-data-search
[iv] https://www.cnbc.com/2018/09/07/us-markets-jobs-report-and-data-in-focus.html
[v] https://www.bloomberg.com/news/articles/2018-09-07/summer-s-end-breaks-s-p-500-s-momentum-as-tech-trade-war-bite?srnd=markets-vp
[vi] https://www.marketwatch.com/story/near-term-likelihood-of-us-china-trade-pact-seen-dimming-2018-09-07
[vii] https://www.bloomberg.com/news/articles/2018-09-07/summer-s-end-breaks-s-p-500-s-momentum-as-tech-trade-war-bite?srnd=markets-vp
[viii] https://www.marketwatch.com/story/stock-futures-point-to-lower-open-after-jobs-report-sp-500-could-have-4th-down-day-2018-09-07?dist=markets
[ix] https://www.cnbc.com/2018/09/07/us-markets-jobs-report-and-data-in-focus.html
[x] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485659&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[xi] https://www.marketwatch.com/story/stock-futures-point-to-lower-open-after-jobs-report-sp-500-could-have-4th-down-day-2018-09-07?dist=markets
[xii] https://www.marketwatch.com/story/stock-futures-point-to-lower-open-after-jobs-report-sp-500-could-have-4th-down-day-2018-09-07?dist=markets