July Economic Update
At the half way mark for this year, the stock market experienced divergences between sectors with tech and oil rallying, while “blue chip” stocks began to slip. The escalating global trade war, in conjunction with rising interest rates and a strengthening dollar, put pressure on the Dow Jones Industrial Average which retreated 0.59% last month and closed just below its 200-day moving average last month. The more broad-based S&P 500 index posted a gain of 0.48%, while the tech-heavy NASDAQ index led the month rising 0.92%. Worldwide, equity benchmarks treaded water or posted losses as the U.S., European Union, and China exchanged tariff threats. (1,2)
Domestically, the U.S. economy fared well. Hiring and retail sales data were excellent, consumer confidence appeared strong, and industrials were growing impressively. Inflation pressure is mounting, and in turn, the Federal Reserve responded with another interest rate hike which was expected. Real estate numbers were mixed with new home sales improving, but residential resales declining. The ongoing trade frictions continue to mute the upside movement which we saw earlier in the year.
Global Trade Dispute Update
The Trump administration announced tariffs in June aimed at China which includes $34 billion on Chinese imported goods which enforcement would begin on July 6th, with another $16 billion to be potentially implemented in the future. The administration also targeted the European Union announcing planned tariffs of 20% on automobile imports coming across the Atlantic. In response, the E.U. and China have announced retaliatory measures. (3)
What does this all mean for your investments? For the time being, expect more new tariff announcements followed by counter measures in the coming month. In the short-term, we can expect the stock market oscillation to continue as some equity sectors would be impacted more than others. In the long-term, any successful changes with the U.S. and China trade imbalance would potentially be a positive for the markets and hopefully offset short-term gyrations.
Real Estate Mixed Signals
New home sales were a surprise to the upside recently with new home purchases improving by 6.7%. However, this is likely contributed to a decline in new home prices which were down by 3.3%. Existing home sales, which account for the vast majority of residential estate transactions, weakened 2.7% in April and 0.4% in May. (4)