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.
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.
Residents in a Toronto neighborhood were fed up with a massive sinkhole, so they decided to stage a healthy protest by growing tomato plants in it. Once the story hit the local news, the city finally came around to fixing the sinkhole. Meanwhile, the tomato plants were not forgotten — they were transferred to a community garden.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.