BALANCING ACT - Today's financial markets balancing act
S&P 500 market index is flat one more week. It was at 2,840 - August 14th, and it ended at 2847 - August 23rd. But it was not a dull week; it was a thrilling roller coaster. There was a lot of optimism at the beginning of the week. Market participants were hoping Fed Chairman Mr. Powell will deliver a dovish speech, and in a way he did it last Friday.
U.S. market indexes rose, and bond yields went down, but trade dispute reignited that same Friday morning suddenly. China retaliated with an additional tariffs on 75 billion of U.S. imports, and a few hours later the U.S. responded with even higher tariff rates for Chinese imports. Markets reacted sharply and without delay, dropping between 2% to 3% during Friday. Until now, there is no other subject more sensitive for U.S. markets than the U.S. vs China trade dispute.
As I shared before, last week we just experienced again how this final phase of the economic cycle plays out with another burst of volatility. There are several U.S. economic variables showing weakness signs (manufacturing, business investment and weak inflation), while the U.S. consumers are still confident and buying more. On top of that the Fed cut 25 bps rates weeks ago, but the market participants want even more.
The economy in the rest of the world is mostly weakening. China is consistently slowing down and facing political instability. European countries have their share of economic problems (Germany, U.K., and Italy) and Brexit, to mention a few.
If U.S. employment level holds steady and the consumer's confidence continues strong over time, the economy may continue to have a buffer to withstand more headwinds.
This balancing act in the U.S. economy will define market participants behavior between greed and fear. The next rational question will be for how long it may be able to sustain the balance positive. So even with these headwinds, we continue to play with the cards we are dealt. Our asset allocation and investments continues to profit well during these volatile markets.
For more information, questions, or to review your portfolio, you can reach me at
firstname.lastname@example.org or +1-786-953-0475 (Whatsapp) instagram : @mr_mklopez
Have a nice week!
- Michele López