Equities Slump for Second WeekSubmitted by Guidant Planning on March 27th, 2018
March 26, 2018–U.S. stocks ended sharply lower last Friday, capping the three main domestic indices with their worst weekly decline in over two years amid uncertainty over a potential trade war with China. Investors were also vexed over by higher borrowing rates which, together with retaliatory trade tariffs, could hinder economic growth. This second wave selloff was sparked by President Trump’s Thursday announcement of 25% tariffs on at least $50 billion worth of targeted Chinese imported goods and the swift retaliatory response from China. Chinese officials said that if trade negotiations fail, they will respond with tariffs on around $3 billion worth of American exports and threatened to trim their holdings of U.S. Treasuries. Markets largely shrugged off positive economic data and Trump’s signing of a $1.3 trillion omnibus spending bill that averted another government shutdown. The S&P 500 retested prior lows, bouncing off its 200-day moving average, coming within 0.2% of its February 18 low, and ended the week 9.9% below its January 26 all-time high.
In key economic news last week, the Federal Reserve raised interest rates for the sixth time since December 2015, lifting the federal funds rate by 0.25% to a range of 1.50% -1.75%. Policymakers also raised their forecasts for GDP growth and inflation, while reducing projections for the unemployment rate. The Fed retained an outlook for three rate increases this year, but raised the number expected for 2019 to three from two. Other data showed existing home sales rose 3% in February, their first increase in three months, and widely topped forecasts for a 0.4% gain. Weekly jobless claims inched higher, while continuing claims fell to the lowest level since 1973. Durable goods orders strongly rebounded in February, rising 3.1%, nearly twice the projected increase, and follow a revised 3.5% January decline. Orders for nondefense capital goods excluding aircraft, a proxy for business investment, rose 1.8% last month, following a 0.4% decline in January.
For the week, the S&P 500 lost 5.93%, the Dow Industrials shed over 1,413 points (-5.66%), and the Nasdaq Composite slumped 6.53%. Small and mid cap stocks fared only somewhat better, retreating by 4.77% and 4.87% respectively. Global stocks also suffered strong losses last week, as the MSCI All-Country World Index dropped by 4.39%. Within the S&P 500, Technology (-7.87%), Financials (-7.21%) and Healthcare (-6.77%) fell the most, while Energy (-0.92%) and Utilities (-2.50%) fell the least. The U.S. Dollar Index weakened by 0.88% to end the week at 89.436. Treasury securities advanced on safe-haven buying, sending the yield on benchmark 10-year Treasury notes down 0.31% to 2.814%.
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Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies.
The Nikkei 225 Stock Average is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. The constituents are changed at the beginning of October every year based on an annual review by Nikkei, Inc. The Nikkei average was first published on May 16, 1949, where the average price was ¥176.21 with a divisor of 22.5
The Hang Seng Index is a market capitalization weighted index of the stocks of the 33 largest companies in the Hong Kong market. The Hang Seng Index is a price weighted/share price index which measures movements in the prices of shares, but not of their dividends.
The Shanghai Composite Index is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange
The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom
The Bloomberg Barclays US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB-by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 8.25 years. This total return index, created in 1986 with history backfilled to January 1, 1976, is unhedged and rebalances monthly
The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index 6 holdings has a fluctuating average life of around 6.3 years. This total return unhedged index was created in 1986, with history backfilled to July 1, 1983 and rebalances monthly.
The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Many of the subindicies of the Municipal Index have historical data to January 1980. In addition, several subindicies based on maturity and revenue source have been created, some with inception dates after January 1980, but no later than July 1, 1993. Eligible securities must be rated investment grade (Baa3/BBB-or higher) by Moody’s and S&P and have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 12.8 years. This total return index is unhedged and rebalances monthly
The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index. However, between rebalancings, group weightings may fluctuate to levels outside the limits. The index rebalances annually, weighted 2/3 by trading volume and 1/3 by world production.
The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.
The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.
West Texas Intermediate (WTI) is a crude oil stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing a number of other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts
The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.
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