Market Update: Friday, March 23, 2018

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Daily Insights

  • China retaliates. After President Trump announced tariffs on Chinese goods totaling up to $60 billion, China announced it will be levying roughly $3 billion in tariffs on U.S. imports targeting steel, aluminum, pork, wine, fruit, and other products. China is also leaving itself more room for further tariffs, including soybeans and airplanes. We looked at potential trade war implications in this recent Weekly Economic Commentary.

  • What do higher rates really mean? After increasing rates for the sixth time this cycle, the Federal Reserve (Fed) left the door wide open for more hikes over the coming years. With the 10-year Treasury yield near 4-year highs and many yields on the shorter end of the curve at their highest points since before the financial crisis, the question has been raised, “What do stocks do when rates go higher?” Yesterday on the blog we analyzed 23 periods of higher rates going back to the early 1960s. Sure enough, the S&P 500 Index gained in 19 of those periods. Be sure to read today’s blog post on why higher rates tend to happen in bull markets.

  • Ninth inning save. After making its way through the House on Thursday, the Senate passed the $1.3 trillion spending bill just after midnight last night. The bill is now on President Trump’s desk, where he is expected to sign it soon and avoid a third government shutdown this year. The current spending bill would fund the U.S. government through September. Importantly, stocks tend to do just fine during shutdowns, which rarely last more than a week or two. We updated our chart on the LPL Research House of Charts reviewing stocks’ performance during government shutdowns.

  • Another big down day. The S&P 500 fell 2.5% on Thursday on trade war concerns, marking the worst drop for stocks in March since 2009. As a result, the S&P 500 moved into negative territory on the year. Considering how strong January was (+5.6%), a negative first quarter would be rare. In fact, only once in history (1980) was the S&P 500 up more than 5% in January only to end the first quarter in the red. However, even with the negative first quarter it wasn’t all bad news, as the S&P 500 gained 25.8% that year.

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Friday

  • Durable Goods Orders (Feb)
  • Cap Goods Shipments & Orders (Feb)
  • New Home Sales (Feb)
  • Revisions: Industrial Production & Capacity Utilization
  • Bostic (Dove)
  • Kashkari (Dove)
  • Canada: Retail Sales (Jan)
  • Canada: CPI (Feb)
  • Bank of Russia: Key Rate
  • Bank of Russia: Nabiullina

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