Tensions between the U.S. and Iran and the ongoing trade negotiations with China dominated headlines this week. On May 10, tariffs on $200 billion in Chinese imports increased from 10% to 25% with more to follow. China responded in kind with an additional tariff on $60 billion in U.S. goods to take effect June 1. While no specific progress was made after that point, an agreement was reached to exempt Mexico and Canada from the aluminum and steel tariffs that were imposed last year and the proposed tariffs on auto imports were postponed by six months. Meanwhile, concerns that Iran was behind an attack on a U.S. oil tanker flared U.S. relations and heightened geopolitical risks.

Equity markets began the week in free fall with technology stocks taking the brunt of the fall as investors feared that new proposed tariffs on $300 billion of Chinese goods – in addition to the current ones – would adversely impact their profitability. While large cap U.S. stocks recovered some during the remainder of the week, small cap and emerging market stocks were not as resilient. Bond yields dropped again with the market now assuming a rate cut will be forthcoming. Whether that will materialize is to be determined but certainly the 10-Year Treasury yield’s move from its November high of 3.24% to its current yield of 2.39% is a sign of the market’s outlook on rates and risk.

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