October 24, 2018

Financial Markets

  • Major U.S. equity indices had large gains and outperformed other regions in reaction to robust economic and corporate earnings reports. Earnings for the S&P 500 were up over 25% in the second quarter.  Japanese equities reached a 27-year high on a rebound in economic activity and a boost to exports from a lower yen.  European equity markets were weak on reports of lower exports, uncertainty about Brexit negotiations, and worries that a new Italian government budget would add to the already sizeable deficit.  Emerging market equities declined, hurt by a stronger dollar, trade policy uncertainty, and political issues.
  • S. bond returns were mostly negative as yields rose on expectations for tighter monetary policy in the future.
  • Industrial metals and agricultural prices dropped on tariff news. Crude oil prices rose due to supply worries.

Overview of the Economy

  • S. gross domestic product (GDP) rose to 4.2% for the second quarter as the economic expansion in the U.S. continues with improvements in manufacturing and service sector activity, retail sales, and the labor market. Data from China weakened and the government implemented fiscal stimulus and credit easing moves.

Notable Events

  • The U.S. Federal Reserve Open Market Committee (FOMC) raised the federal funds rate target by 0.25% and indicated a continued gradual pace for future interest rate hikes. Several other countries, including Canada and the United Kingdom (UK), also raised rates during the quarter.
  • The trade skirmish heated up as the U.S. imposed a new 10% tariff on $200 billion of Chinese imports and China retaliated with tariffs on $60 billion of U.S. imports. On a positive note, a new agreement was reached with South Korea and a new agreement between the U.S., Mexico, and Canada was reached.

 

For an in-depth analysis of the quarter, please download the PDF.