Markets gyrated in a heavy news week with comments from Chairman Powell as well as President Trump’s proposed tariffs taking center stage. Additionally, personal consumption and manufacturing data confirmed that the U.S. economy remains on solid footing – echoing the sentiments of Powell. The Fed Chair, however, reiterated twice this week that the long-term path of U.S. spending is unsustainable. Globally, the markets were digesting both Vladimir Putin’s announcement of advanced nuclear weaponry and the elimination of presidential term limits in China when Thursday’s heated talks of tariffs and trade wars roiled large cap U.S. stocks.
For large cap U.S. stocks, the end result for the week was a slightly more than 2% decline, but year-to-date returns are still positive. U.S. small cap stocks, which have trailed their larger counterparts, closed some of the gap over the last few days as the markets likely took the view that smaller domestic companies will be less vulnerable if a trade war ensues. Interest rates vacillated as comments earlier in the week from Chairman Powell were more hawkish than expected – leading many to believe that there could be four rate hikes versus three this year. However, bond prices were boosted later in the week in a flight to quality as mercantilist trade talk hit the global markets.