Ever rising stakes in the trade war provided a dramatic end to the week. Prior to Friday’s trade turmoil, Fed Chairman Powell’s speech to commence the Jackson Hole Economic Symposium was widely anticipated as investors looked for clues on future rate cuts. Powell took a neutral stance – indicating the Fed could be more accommodative if needed, but also warned that monetary policy had limitations with respect to international trade. Overshadowing Powell’s speech, though, was China’s announcement of a tariff increase of up to 15% on $75 billion of additional U.S. goods and a resumption of auto tariffs. President Trump fired back and “ordered” U.S. companies to relocate from China and, after the market close, announced an increase to 30% for existing tariffs and 15% for those proposed.

U.S. stocks took a dive on the trade escalation news with the technology heavy Nasdaq index and small cap stocks taking the brunt of the decline – down nearly 3% on Friday. Energy and auto stocks were also hit hard by the news. The rising fear also caused the 2-year and 10-year Treasury notes yields to briefly invert – again raising investor fears of a recession. On the international front, emerging market stocks dropped in tandem with U.S. stocks and developed international experienced a smaller decline. Bond funds held steady as the 10-year Treasury yield stayed within the range of 1.50%-1.65%.

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