Volatile week following Fed and tariff announcements. The S&P 500 Index has had a rocky week so far, on track for the largest weekly decline since May. We’re currently monitoring the 2,972 level as a first area to find support, which would be a 5% retracement of the January 2018 high. Should this level falter, the next major zone of support would be around 2,728, the low from May.
Tariff tweet. Thursday afternoon, August 1, President Trump’s tweet imposing a 10% tariff on the final approximately $300 billion tranche of Chinese imports starting September 1 pushed markets down, with the S&P 500 falling 0.9% after being up approximately 1% pre-announcement. WTI crude oil also experienced its biggest one day drop, in percentage terms, since February 4, 2015. President Trump continues to describe the trade talks with China as “constructive,” with the U.S. in pursuit to continue the positive dialogue despite China not buying U.S. agricultural products in large enough quantities, as previously promised by President Xi. This announcement comes on the heels of the Federal Reserve’s (Fed) rate cut, potentially adding pressure on the Fed cut rates further with tariffs weighing on business sentiment and investment.
Solid job creation in July. Nonfarm payrolls rose 164,000 in June, in line with consensus estimates for a 165,000 gain. Job creation has slowed this year, but not to levels that concern us. The 12-month average payrolls gain was 187,000 through July, an above-average pace for the expansion. Average hourly earnings grew 3.2% year over year in July, a faster pace than June’s growth and at a healthy clip for the U.S. consumer. We’ll dig more into the July jobs report in today’s LPL Research blog post.
U.S. manufacturing muddles through. U.S. manufacturing expanded for the 35th consecutive month in July, according to the Institute for Supply Managements’ (ISM) manufacturing Purchasing Managers’ Index (PMI), but growth fell to its lowest level since 2016. New orders, an important leading indicator, accelerated modestly, while export orders contracted and overall production slowed. U.S. manufacturing has held up better than both Europe and China in the face of increasing trade friction, but the July report provided further evidence that the U.S. has not been immune from the global manufacturing slowdown as trade uncertainty continues to undermine fiscal incentives put in place to encourage capital expenditures.
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