Domestic markets fell last week due to negative trade news and declining tech stocks, with the S&P 500 and Dow both breaking their multi-week winning streaks. Meanwhile, the NASDAQ posted losses for 4 days in a row for the first time since April and experienced its worst September start since 2008.[1] Overall, the S&P 500 lost 1.03%, the Dow dropped 0.19%, and the NASDAQ gave back 2.55% for the week.[2] International stocks in the MSCI EAFE also declined, losing 2.89%.[3]
The Cboe Volatility Index (VIX), which can help gauge market fears, increased 15.8% last week.[4] This increase matches what often occurs during September, when volatility returns after waning during the summer months. In fact, since 2007, volatility has been above average in September.[5]
Of course, the change from one month or season to another isn’t enough to trigger market losses and rising volatility. Let’s analyze what drove these experiences last week.
- Trade tension escalated between the U.S. and China.
The U.S. is getting closer to resolving trade issues with Mexico, Canada, and the European Union – and the countries may unite against China’s trade approach. As a result, the likelihood of calming the trade dispute between the U.S. and China is fading.[6] Last week, President Trump said he was prepared to add tariffs to another $267 billion in Chinese goods. These tariffs would be in addition to the $200 billion that may launch soon, which one expert said could reduce the S&P 500 by 5%.[7]
- Tech stocks dropped.
Last week, the technology sector declined by 2.9%.[8] Tech has performed better than any other sector this year and has been a market leader for 3 years. But concerns about increasing regulation – with a focus on social media companies – weighed on investors’ minds last week.[9]
- Wage growth increased.
The latest jobs report surpassed expectations, with the economy adding 201,000 jobs in August. Year-over-year wage growth also rose more than expected and hit its fastest pace since 2009.[10] This wage increase contributed to stock losses, because it could mean that 2018 will have 2 additional interest rate increases – with more on the horizon for 2019.[11]
Last week certainly provided data and headlines for investors to digest. But the job market, economic fundamentals, and market remain strong.[12] For the moment, we’ll continue to review the data we receive and seek new ways to help you prepare for what lies ahead.
[1] www.cnbc.com/2018/09/07/us-markets-jobs-report-and-data-in-focus.html
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[3] www.msci.com/end-of-day-data-search
[4] www.cnbc.com/2018/09/07/us-markets-jobs-report-and-data-in-focus.html
[6] www.marketwatch.com/story/near-term-likelihood-of-us-china-trade-pact-seen-dimming-2018-09-07
[9] www.cnbc.com/2018/09/07/us-markets-jobs-report-and-data-in-focus.html
[10] wsj-us.econoday.com/byshoweventfull.asp?fid=485659&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
