Markets “In a Nutshell” for August 6, 2019

Investment Week at a Glance

Stocks dropped last week. The Dow Jones Industrial average was down 2.6% while the S&P 500 fell 3.1%. The New York Stock Exchange Composite (2,000 stocks) lost 3.0%. The “average investor’s index” (Value Line index) fell 3.3%. Foreign stocks (EAFE index) were down 2.6%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 1.86%. (Data sources: Barron’s Financial, Wall Street Journal)

Fed Cuts Rates

The big news last week was the Federal Reserve (the U.S. central bank) cutting short term interest rates for the first time in 10 years. Rates are cut when the Fed believes the economy is weakening and is in need of “stimulus.” Lower interest rates to boost economic growth as people can borrow money more cheaply to buy things like cars and houses. The rate cut to 2%-2.25% was a controversial one as U.S. economic growth looks strong and the economy continues on a record expansion. However, Fed officials say that their job is to keep the economy growing and although the economy is growing well now, a rate cut can prevent an economic downturn in the future.

Tariffs Knock China From Top U.S. Trading Spot

The tariff (tariffs are taxes placed on imported and/or exported goods from one country to another) war between the U.S. and China has pushed China down from 1st to 3rd place as a U.S trading partner. The Wall Street Journal (8-3/4) reports that Mexico has taken over as the as the top trading partner of the U.S. Canada moved into the number two slot. Imports from China fell by 12% the first 6 months of 2019 while exports to China dropped 19%. The trade declines come after 30+ years of steady trade increases between the two countries. The trade decline however, hasn’t stopped both countries stock markets from generating double digit performance in 2019 with Chinese stocks up 14% and U.S. stocks up 13%.

Stocks Still Look Like Good Investment According to Barron’s

Barron’s Financial Andrew Bary writes that “stocks still look like the best asset class around.” In his Up and Down Wall Street column (7/22) Bary quotes Charles Lieberman, chief investment officer at Advisors Capital Management who says that low economic growth, low inflation and low interest rates are an “ideal environment” for stocks. Lieberman sees value in banking stocks and other “cheap” stock sectors.

Quiz:

We wrote of the top three U.S. trading partners above (Mexico, Canada and China). Which of the following countries is the 4th best trading partner of the U.S.?

 

a)   Germany

b)   Venezuela

c)   France

d)   Japan

 

Answer is below.

 

Have a good week!

 

 

 

 

 

 

  

 Answer to quiz:

d)   Japan