I hope everyone enjoyed some time off with friends and family over the long holiday weekend. I also want to take a minute to acknowledge the thousands and thousands of men and women who have bravely served our country - especially those who made the ultimate sacrifice so that the rest of us can live a life of opportunity and hope. We certainly have our problems these days, but I wouldn't want to live anywhere else. With that, read on for this week’s market analysis.
Broad U.S. equity markets suffered a second straight week of declines. We have now given up all of April’s gains and are holding just above the all-important 200-day moving average for the Dow, S&P 500 and Nasdaq. The small-cap and mid-cap indexes have fallen below their 200-day moving averages. Defensive sectors like utilities, consumer staples and healthcare are outperforming higher risk sectors.
Consumer discretionary stocks and technology continue to be hit the hardest. This is of course due to the trade war with China and those sectors’ exposure to increased costs and shrinking margins as the tariffs begin to take effect. I read this weekend that the current tariffs will take 0.7% off China's 2021 GDP, 0.5% off U.S. GDP and 0.3% off world GDP. It seems everyone will get hurt and investors continue to try and determine which assets will do best. As it stands now, growth assets look the least attractive. Money has continued to flow into fixed income and treasuries. This makes sense given the pullback in interest rates we have seen. The 10-Year Treasury Note is now approaching the lowest levels in two years, with a current yield of 2.24%. Just seven months ago investors were worried that rising rates were the major risk to the now ten-year-old bull market. It turns out that we may have already seen the high in rates for the current cycle and it is tariffs that are going to choke off growth. Of course, the end isn't here yet and as my grandmother used to say, "There is a lot of slip between the spoon and the lip.”
Real estate continues to do well – and that is a positive. Some of the real estate outperformance is due to low rates. All REITs pay dividends, which become attractive in a low rate environment. The rest is likely due to continued demand for homes and record low unemployment. As long as we see home buyers stepping up, coupled with low unemployment, we have a backstop (domestically) to the problems created by tariffs. We will watch real estate closely for cracks in that market. We will also continue to watch all major indexes as they battle the 200-day moving average.
President, Andrew Nida
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