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Market Update – Week of May 17th


The Newday Team - Newday

A brief history on the U.S./ China Trade War

In early 2018, President Trump continued his protectionist campaign by calling out China on unfair trading practices. The U.S. government imposed tariffs on Chinese goods worth over half a trillion dollars, which in turn made the Chinese government retaliate with a 25% tax on over 100 U.S. products. In fall of 2018, the two countries continued to threaten each other by proposing tariffs on a variety of products. Between Winter of 2018 and Spring of 2019, both nations slowed down tensions by being on the verge of a trade agreement. Notwithstanding, tensions started to scale in the beginning of May after President Trump communicated his discontent on the trade negotiations.

 

Trade Tensions Arise

This week, the Chinese government increased its tariffs by 25% on U.S. goods worth more than $60 billion, increasing uncertainty in the investors’ sentiment of the market. Sectors exposed to the impact levy include energy, materials, consumer staples, and information technology.

 

Stocks’ Climb Continues

The stock market’s latest spike has been fueled by better-than expected earnings, as well as data suggesting the economy grew faster than initially expected in the first three months of the year. These reports have offered investors reassurance that the economy is in good shape after the collective uncertainty driven by the last months of 2018. The U.S. market benchmark S&P 500 has soared 17% this year, closing out one of its best quarters in a decade. While its industrial counterpart, the Dow Jones Industrial Average, has advanced 14%.

 

A Tale of Two Companies

This week, Walmart and Cisco helped boost the Dow Jones Industrial Average index by their strong earnings report. Walmart’s result signaled robust consumer spending and Cisco’s quarterly report outperformed analysts’ expectations, sending shares up by 7.1%.

 

Sector Ambiguity

Year to date, the market winners could be anticipating a strong economy: the information technology sector has been up 30%, closely followed by the consumer discretionary and industrial sectors. However, performance since the last high––prior to the September correction––shows the industrial, financial and energy sectors underperforming to the S&P 500, and utilities and real-estate stocks beating the information technology stocks.

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