Weekly Update 7/27/2018 – Foreign Stocks Shine, Technology Tanks U.S.

US: S&P 500 Index -0.7%, Dow +0.4%, Nasdaq -1.5%
Europe: STOXX Europe 600 +0.4%, German DAX +0.4%, France CAC 40 +0.6%, U.K. FTSE 100 +0.5%
Asia: Japan Nikkei +0.6%, China Shanghai Composite -0.3%, Korea KOSPI  +0.3%
Rates/Commodities: 10-Year Treasury yield +6 basis points to 2.96%, WTI crude oil -1.1%, COMEX gold -0.3%

Major U.S. indexes were mixed heading into what has historically been the weakest month of the year for the S&P 500 Index. The Dow outperformed amid the busiest week of second-quarter earnings season, but markets surrendered much of their early-week gains and the Nasdaq fell into negative territory after disappointing earnings reports from several high profile technology firms (more insights on second quarter earnings here). Small company stocks lagged the broad market, tumbling more than 1% after reports suggested investors’ assumption that smaller, more domestically-focused companies are relatively insulated from tariffs may be misguided. It was a bit of a mixed bag on the economic front after declines in both new and existing home sales, which came on the heels of rising mortgage rates and prices that are climbing twice as fast as incomes, were buoyed by an increase in building permits and second quarter gross domestic product (GDP) figures that topped 4% for the first time since 2014 (more insights on the GDP report here).

Foreign equities, in both developed and emerging markets, put in a solid performance. In Europe, stocks got a mid-week boost after President Donald Trump and European Commission President Jean-Claude Juncker agreed to hold off on imposing any further tariffs (including President Trump’s threatened 25% tariff on auto imports from Europe) and work toward a bilateral agreement. Also, the European Central Bank (ECB) held a monetary policy meeting that concluded with the status quo on interest rates and provided little in the way of changes to forward expectations. However, LPL Chief Investment Strategist John Lynch noted “While we don’t expect any changes to interest rate policy until well into 2019, which the ECB confirmed would be the course of action, we do expect that it will end up extending its asset-purchase program past its September end date, albeit at a slower pace than the current 30 billion euro level.” Elsewhere, stocks across Asia ended the week comfortably in the green with the exception of Japanese equities, which closed marginally higher but lagged regional indexes as the Nikkei clawed its way back from sharp losses on Monday stemming from news that the Bank of Japan is actively discussing changes to its quantitative easing program; namely its interest rate targets, which are expensive to maintain, but its approach to purchasing government bonds and exchange traded funds is also being debated.

The Federal Reserve’s monetary policy meeting highlights the U.S. calendar next week, though no rate hike is expected. Top-tier economic data to monitor include Core Personal Consumption Expenditures and the monthly nonfarm payrolls report. View all the key events on our Weekly Global Economic & Policy Calendar.


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