Global equities sold off this week, though major U.S. indexes held up relatively well, as investors' continued focus on Turkey, coupled with mixed economic data and commodity price weakness, stoked a resurgence in volatility.
Concerns about Turkey’s economic woes broadened to European banks, specifically those that hold Turkish debt and the extent—if any—to which they’re exposed to the plunging lira. A resurgence of the U.S. dollar and further declines in commodities also helped push foreign equities lower, with emerging markets (EM) stocks bearing the brunt of the selling pressure.
However, while Turkey’s situation may be a cautionary tale for other EM countries, fears of contagion may be overblown. The country’s "growth-at-all-costs" approach over the past few years has left it with the largest current account deficit of any emerging market country, meaning it’s spending a lot more on imports that it makes on exports; and it’s on track this year to post a current account deficit that’s second only to India, whose economy is three times the size. Assessing the selloff in emerging markets, LPL Chief Investment Strategist John Lynch noted, "Aside from the fact that Turkey represents less than 1% of the MSCI Emerging Markets Index, the country’s economic woes are not representative of emerging markets overall, and we believe these bouts of selling could prove to be opportunities for appropriate investors looking to add or increase exposure to the broad emerging markets space."
The S&P 500 Index, meanwhile, finished higher this week and remains within striking distance of record highs. The gains followed a mid-week selloff that came on the heels of economic data that showed a slowdown in manufacturing growth and a further drop in new housing starts, along with a 4% drop in copper prices that left the widely used industrial metal in bear market territory. However, the bulls managed to sustain those gains into Friday’s close with buying in defensive sectors providing support, while sentiment was buoyed by an announcement that representatives from the U.S. and China plan to hold another round of trade talks next week and better-than-expected Leading Economic Indicators.
Next week, the minutes from last month’s Federal Reserve policy meeting are due out ahead of a speech from Fed Chairman Jerome Powell on Friday. The economic calendar is highlighted by several data releases on the U.S. housing market, along with Purchasing Managers’ Index releases for the U.S., Eurozone, France, Japan, and Germany.
###
IMPORTANT: The projections or other information generated by GWP regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Past performance is not indicative of future results. The tax loss harvesting and other tax strategies discussed should not be interpreted as tax advice and there is no representation that such strategies will result in any particular tax consequence. Clients should consult with their personal tax advisors regarding the tax consequences of investing.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor Member FINRASIPC /
For Client Use - Tracking #1- 761622 (Exp. 8/19)