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THIS WEEK'S UPDATE

| August 26, 2019
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LAST WEEK ON WALL STREET
Traders assumed that the week’s biggest news event would be Federal Reserve Chairman Jerome Powell’s speech at the annual Jackson Hole banking conference. Instead, China seized the headlines by announcing new tariffs on U.S. goods.  Domestic stocks ended up lower for the week. The Nasdaq Composite fell 1.83%; the S&P 500, 1.44%; the Dow Jones Industrial Average, 0.99%. International stocks posted a weekly gain: the MSCI EAFE benchmark rose 0.96%.
   
BEIJING PLANS NEW TARIFFS
Friday morning, China’s finance ministry stated it would levy import taxes of 5-10% on an additional $75 billion of American imports. One set of tariffs is slated to start September 1, targeting U.S. crops, meats, and seafood. A second set, effective December 15, will put tariffs on U.S.-made cars and car parts. In total, these taxes are scheduled for more than 5,000 American products. Friday evening, the White House announced two rounds of 5% increases on existing U.S. tariffs on Chinese goods, to be successively implemented on September 1 and October 
  
POWELL REFLECTS AT JACKSON HOLE
Friday, Jerome Powell delivered an address on monetary policy at the Kansas City Fed’s annual Jackson Hole symposium. He noted that the global economy currently presented a “complex, turbulent picture,” and added that the Fed was “carefully watching developments” and would “act as appropriate.”  Investors wonder if, at its September meeting, the central bank will consider another rate cut. Comments from other Fed officials at Jackson Hole did not indicate a consensus on that matter.
   
LEADING INDICATORS RISE
The Conference Board, the business research group known for its monthly Consumer Confidence Index, also publishes a monthly Leading Economic Indicator (LEI) Index. The Conference Board’s LEI provides a forward-looking analysis of the health of the business cycle, looking at ten factors ranging from consumer expectations to stock prices to construction activity.  In July, the LEI rose 0.5%, following 0.1% descents in May and June. This sudden increase offers optimism at a time when investors are wondering about the momentum of the economy.
  
FINAL THOUGHTS
Fear and Greed.  These simple academic descriptions of investor sentiment explain the volatility in last week's market behavior and may well define the conundrum in days ahead. What do investors fear? A recession coming our way, well foretold by the incipient yield curve inversion. And where do we find greed? Perhaps in the cry for an aggressive reaction by the Fed as a cure-all for the calamity of falling stock prices.
 
We don't believe either sentiment is a rational and prudent reason to invest. Jerome Powell alone cannot be held accountable for these volatile markets. If anything, he has reacted without passion to the "tweeting" invectives of the President, and in a very professional way. In last Friday's Jackson Hole speech, Powell said "the Fed will act as appropriate to sustain economic expansion." If we are in an economic expansion, the fear of a recession may be sentimental hyperventilation.
 
Ours is not a forum to discuss politics, but the G-7, IMF, and World Bank consensus is the "tit-for-tat" trade war is disrupting the global supply system and may well exacerbate a slowdown in global growth. We cannot overlook the announcement by President Trump at the G-7 meeting of an impending trade agreement with Japan, and the fact that we need similar resolution with China. Hopefully, the most recent news will move us toward that end.
 
Fear of a recession, an escalating trade war, and geopolitical developments ... there's a lot going on in the world right now.  As we've seen over the years, events like these can influence stock prices in the short-term.  When you hear that markets are reacting to the latest news, remember: those reactions are a common occurrence, not necessarily a cause for alarm.  High quality companies have weathered conditions like this before.
 
While market volatility can be unnerving, please know that we are keeping a close watch over these long nights on your behalf.

Warm regards,

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