Markets encountered their first bout of volatility in 2019 after the U.S. announced it would increase tariffs from 10% to 25% on $200 billion of Chinese imports. The developments renewed concerns of slowing global growth, as a resolution to the ongoing trade conflict was expected to be a positive catalyst for business confidence and consumer spending. It is important to review the context of the volatility however, as the S&P 500 Index is just 3% off its all-time closing highs despite headlines noting this is the worst week of returns since December 2018. While volatility can be uncomfortable, we continue to encourage investors to focus on long-term fundamentals rather than daily headlines. Corporate earnings are ultimately the long-term determinant of market returns, and U.S. companies have posted better-than-feared results this quarter thus far. “The bar for earnings results is low because of heightened uncertainty,” said LPL Research Chief Investment Strategist John Lynch. “Economic growth may be moderating internationally, but we see enough catalysts ahead to potentially drive another year of record profits in the U.S.”
Overseas, markets were not immune to the escalation of trade negotiations, however. Losses extended throughout Europe, though the FTSE 100 Index fared the best among markets in the region. Weakness was most pronounced in Asian markets: the Hang Seng and Shanghai Composite fell 5% and 4.5%, respectively.
In the week ahead, U.S. investors will keep a close eye on the April update of the National Federation of Independent Business’s Small Business Optimism Index for a read on corporate sentiment. Overseas, Germany and Eurozone gross domestic product (GDP) reports and Consumer Price Index data headline the European docket. The economic calendar is light in Asia, although China’s industrial production data will be released. Track these and other important events on our Weekly Global Economic & Policy Calendar.
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FTSE 100 Index measures the 100 companies listed on the London Stock Exchange with the highest market capitalization.
The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The index was developed on December 19, 1990 with a base value of 100. Index trade volume on Q is scaled down by a factor of 1000.
The Hang Seng index is a market capitalization weighted index which tracks daily changes of the 48 largest companies in the Hong Kong stock market.
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.
The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of ten seasonally adjusted components based on questions on the following: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.
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