After two weeks of rallies, the S&P 500 mostly consolidated this week – except for Friday the action was very reminiscent of 2017 with almost no volatility at all intraday and modest gains or sideways action. Friday was the wrench in the mix, with a gap down to open the day but buyers came in during the afternoon and in the end the markets had a week to digest prior gains. Friday’s action was due to TRADE WARS(tm)!
President Donald Trump approved tariffs on about $50 billion of Chinese goods, marking the latest escalation in the trade spat between the two countries. Beijing has said it intends to assess tariffs on a corresponding amount of U.S. goods, while Trump said the U.S. would pursue more tariffs if China retaliates. Subsequently, Trump said there was no trade war with China.
The Federal Reserve did what it had telegraphed what it would do:
The Federal Reserve voted to raise its benchmark federal funds rate by a quarter percentage point to a range of 1.75% to 2%. Eight of 15 Fed officials now expect at least four rate hikes will be needed this year, up from seven at the March meeting.
The Fed’s dot plot, a projection by the members of the central bank’s expectations for rates in the future, shows the policy-setting Federal Open Market Committee penciling in two additional rate increases in 2018 for a total of four increases in the year. That is up from expectations from three in the March Fed rate estimates.
More interesting this week was the European Central Bank which Thursday left interest rates unchanged and laid out plans to taper its program of monthly bond purchases later this year. The central bank is aiming to bring them to a halt by the end of 2018. There was no “taper tantrum” by markets, as we saw in the Bernanke era.
“The ECB did a pretty good job telegraphing what it’s planning to do. [ECB President Mario] Draghi is following Ben Bernanke’s playbook, with a zero-interest-rate policy, bond buying, and then eventually shrinking the central bank’s balance sheet. When we did all that, our market continued to move higher, which gives investors confidence that the blueprint they’re following is the correct one,” said Phil Orlando, chief equity market strategist at Federated Investors.
For the week the S&P 500 closed up fractionally while the NASDAQ added yet another 1.3%!Continue reading