Stocks ended the week in mixed territory as trouble with Turkey’s currency affected U.S. equity performance on Friday, August 10.[1] For the week, the S&P lost 0.25%, the Dow declined 0.59%, and the NASDAQ increased 0.35%.[2] International stocks in the MSCI EAFE stumbled, giving back 1.57%.[3]
Although last week brought relatively few economic updates, we did learn that the labor market continues to improve and consumer prices are on the rise.[4] While this news may have affected market performance, the challenges facing Turkey’s economy had an outsized impact on global stocks.[5]
What happened to the Turkish lira?
The Turkish lira dropped 14% to 6.46 per dollar, the weakest on record with the largest drop in more than 17 years. The lira ended the week at a record low against the U.S. dollar.[6] Tension between the U.S. and Turkey played a part in the decline as President Trump tweeted plans to double tariffs on Turkish steel and aluminum imports. This potential tariff hike followed a stalled conversation between the two countries concerning an imprisoned U.S. pastor who Turkey believes supported a 2016 attempted coup.[7]
How did investors react?
The resulting drop in the lira’s value concerned investors and led to losses in markets worldwide. Friday, the S&P 500 marked its largest daily decline since June after getting close to a new record high.[8]
Why do investors care?
The lira’s drop is another sign that emerging markets are experiencing challenges in their economies.[9] Some investors worry that Turkey’s economic crisis could spread to other countries or affect interest in other emerging markets.[10]
Should you be concerned?
Probably not for now. U.S. companies don’t have a tremendous amount of exposure to Turkish markets.[11]
We know that global dynamics can be complex and understanding their specific effects on your financial life may seem challenging. If you have any questions, contact us any time.
[1] www.cnbc.com/2018/08/10/us-markets-political-concerns-keep-investors-on-edge.html
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[3] www.msci.com/end-of-day-data-search
[4] wsj-us.econoday.com/byshoweventfull.asp?fid=485230&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
