Weekly Market Drivers | LPL Financial Research

Markets Get Skittish after Fed Cut, New Tariffs

US: S&P 500 Index -3.10%, Dow -2.6%, Nasdaq -3.9%
Europe: STOXX Europe 600 -3.22%, German DAX -4.4% France CAC 40 -3.6%, U.K. FTSE 100 +0.5%
Asia: Japan Nikkei -2.1%, China Shanghai Composite -2.6%, Korea KOSPI -1.0%
Rates/Commodities: 10-Year Treasury yield -22 basis points to 1.85%, WTI crude oil -4.5%, COMEX gold: +1.9%

Markets experienced a jolt of volatility this week, pushing the S&P 500 Index to its largest weekly decline since December 2018 following the much-anticipated Federal Reserve (Fed) meeting on Wednesday. The Fed announced a -25 basis point (-0.25%) rate cut and an August 1 end to balance sheet runoff, but left the door open for additional rate cuts by reiterating that the Fed will act as necessary to maintain the expansion.

“This rate cut wasn’t warranted by weakness in economic data,” said LPL Research Chief Investment Strategist John Lynch. “However, a small rate cut here could provide a buffer if uncertainty continues to weigh on growth, reducing the chances of a policy mistake or a rush to cut rates before a recession.”

Adding to the volatility, the White House announced 10% tariffs on an additional $300 billion of Chinese goods, mostly retail products, after dissatisfaction with the degree of agricultural purchases promised by President Xi at June’s G-20 summit. While the tariff announcements jolted markets, the move was not entirely surprising after recent reports pointed toward China pursuing a “delay” strategy that would leverage the 2020 presidential election to gain favorable terms during negotiations.

News of the tariffs roiled international equities as well, pushing the MSCI Emerging Markets down 2.3% for the week. However, developed market equities fared better, as the MSCI EAFE Index declined only 1.1% on the week despite the Japanese cabinet voting to remove South Korea from their so-called “white list” of countries that receive favorable customs and trade inspections, heightening tensions on a relatively newer trade front.

Weekly Economic Calendar (August 5-August 9)

Moving forward to the week ahead, data on services activity and wholesale price inflation headlines the U.S. economic docket. Overseas, investors will be watching second-quarter gross domestic product (GDP) reports from Japan and the U.K.



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