Market Commentary

Weekly Market Commentary August 20, 2018

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News of trade talks between the U.S. and China helped support a rally in U.S. stocks last week. The talks are scheduled for next week, and officials say the two nations hope to sign a compromise by November.

U.S. stocks continued their upward trend while international stocks dropped slightly. The S&P 500 rose 0.6%, and the global MSCI ACWI dropped 0.5%. The Bloomberg BarCap Aggregate Bond Index was basically unchanged from the previous week.

The Trump administration is considering allowing companies to report earnings twice each year rather than quarterly. The administration says the extra time would allow companies to take a longer-term view. Critics suggest an added three months is unlikely to make a material difference. The proposal may stretch out the holding periods of some investors. Our approach is always focused on the long term, and whether earnings are reported quarterly or semi-annually won’t make much difference.


Key points for the week

  • China and the U.S. have scheduled trade talks in hopes of reaching a compromise.
  • Turkey’s government made minor, positive steps to support its currency, but risks remain elevated.
  • The Trump administration wants to examine whether companies should report earnings every six months rather than quarterly.

Fundamentals

The situation in Turkey improved this week as the Turkish government took some initial steps to shore up its currency but avoided some of the structural reforms many suggest are necessary. Turkey did take small steps to tighten lending while simultaneously providing support for banks. Qatar also announced a $15 billion support package for Turkey.

Most of these measures are likely to buy time for other reforms to be worked out. Turkey had used debt to fund rapid economic growth in order to support the reelection efforts of President Tayyip Erdogan. Part of the push for rapid growth involved heavy government interference in the central bank’s interest rate policies.

It’s important to remember these types of crises are typically worked out, and markets rally after volatility or declines. The chart below shows how the U.S. stock market has reacted as currency crises fade. In the last five cases, stocks have followed a relatively stable increase as investors see the problem contained. While risks remain, this event may prove to be an excellent opportunity to take advantage of a market decline.

Source: https://www.marketwatch.com/story/stock-market-investors-should-see-this-turkish-crisis-as-a-buying-opportunity-2018-08-13


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