Market Update: Friday, August 24, 2018


Daily Insights

  • Trade talks go nowhere, as expected. Scheduled talks between the U.S. and China ended yesterday, with no major concessions from either side and no further discussions scheduled, as expected. Each country also rolled out $16 billion in tariffs from plans that were announced earlier this month. Domestic markets seem to be taking this news in stride, as major U.S. indexes were slightly higher at the open. Despite the lack of progress this week, we remain hopeful that the U.S. and China will eventually reach an agreement on trade that avoids any significant negative impacts to either economy.

  • Jackson Hole is in session. Yesterday, the Federal Reserve (Fed) kicked off its annual Economic Policy Symposium in Jackson Hole, Wyoming. Fed Chair Jerome Powell began a speech at 10:00 ET today titled “Monetary Policy in a Changing Economy.” The subject couldn’t be more appropriate, as the Fed is in a complicated situation deciding on monetary policy for a strong U.S. economy with a tight labor market, but inconsistent inflationary pressures. Check out the LPL Research blog now for a list of key topics to monitor at the symposium.

  • Transportation weighs down durable goods report. New orders for manufactured durable goods-items meant to last three years or more-slid 1.7% in July, more than the estimated 1.0% decrease. However, much of that decline was from a drop in transportation orders, primarily aircraft. Excluding aircraft, new orders jumped 1.4%; while excluding the broad transportation sector saw new orders increase 0.2%, marking a sixth straight monthly gain. The continued rise in durable goods orders (ex-transportation) indicates the fiscal stimulus implemented earlier this year is fueling business investment. Meanwhile, shipments of durable goods fell 0.2% last month, but shipments excluding transportation rose 0.6% in July and 8.7% year over year, the fastest YOY growth since 2011. Strong shipments growth could foreshadow another strong quarter of economic growth, as shipments are used to calculate gross domestic product. However, unfilled orders ticked up to $1.17 billion, the highest level since 2014, which reflects some tariff-related supply chain disruptions that have been evident in other economic reports.

  • Where were you 3 years ago? In the midst of the China currency and economic concerns of 2015, three years ago today was the first time that the Dow ever fell 1,000 points. It didn’t close down 1,000 points and we are well aware on a percentage basis this wasn’t the largest drop ever, but it was still a harsh reminder that volatility can come at any time. Only two other times in history has it dropped 1,000 points during the day and both of those were this past February. On a percentage basis, the Dow was down 6.62% at the lows three years ago today. The largest ever was 25.33% during the Crash of ’87. We’ll provide historical background on 1,000-point drops in the Dow on the LPL Research blog later today.


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