May 21st, 2018 – Tackling Trade & Treasuries

May 21, 2018

Major domestic indexes went down last week after all three gained more than 2% the previous week.[1] The S&P 500 dropped 0.54%, the Dow gave back 0.47%, and the NASDAQ lost 0.66%.[2] International stocks also stumbled; the MSCI EAFE decreased by 0.61%.[3]

Two familiar topics were on many investors’ minds last week: trade and treasuries. Here is a recap of the key details and their market impacts.

1. U.S. and China Resumed Trade Talks 

Background:
Tension between the world’s 2 largest economies continued last week as the U.S. and China launched another round of trade discussions. Both countries have threatened billions of dollars of tariffs on the other’s products, but so far, neither has acted.[4]

On Saturday, May 19, the countries released a joint statement saying they would take measures to “substantially reduce the United States’ trade deficit in goods with China.” The Chinese state media called the agreement a “win-win.”[5] Then on Sunday, May 20, U.S. Treasury Secretary Steven Mnuchin announced that they had “put the tariffs on hold.”[6] The weekend’s developments imply both countries will continue working to close the trade deficit by increasing China’s imports of U.S. agricultural commodities and energy.[7]

Market Impact:
As the trade talks unfolded on Thursday and Friday, investors received very little information. This uncertainty affected investor sentiment and contributed to stocks ending lower on Friday.[8] Now that the countries have shared some details about the negotiations, we will focus on how investors digest the news in next week’s trading. Mnuchin’s assertion that the trade war is on hold for now should be welcome news for investors.[9]

2. U.S. Treasury Yields Spiked

Background:
The 10-year Treasury yield closed at 3% or higher every day last week.[10] Early Friday, it reached its highest point in almost 7 years as data continued to demonstrate the labor market’s strength. We learned last week that the number of people receiving jobless benefits is at its lowest since 1973. Unemployment is also currently at an almost 17-year low. The numbers suggest the economy is likely reaching full employment.

So, how does labor data affect Treasuries? Typically, employers have to pay higher wages when unemployment is low. As wages increase, other prices in the economy often rise, which can trigger inflation. This can cause Treasury prices to suffer as their fixed payments become less valuable, causing yields to rise.[11]

Market Impact:
Treasury yields affect markets in a variety of ways. When they increase quickly, concerns can arise that the economy is accelerating too fast, which can cause the Federal Reserve to raise interest rates. In addition, for 10-year Treasuries, yields above 3% are a psychological benchmark. Some people believe stocks become less appealing when Treasuries can provide this level of income.[12]

What’s Ahead
For now, we will continue to analyze whether yield increases are a sign of a strengthening economy or rising inflation rates.

We know that trade disputes and Treasury yields are complex, constantly changing topics. So, if you have questions about how these details affect your financial life, we are here to talk.

ECONOMIC CALENDAR
Wednesday: New Home Sales, FOMC Minutes
Thursday: Existing Home Sales, Jobless Claims
Friday: Durable Goods Orders, Consumer Sentiment

[dt_divider style=”thick” /]

 

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

[dt_divider style=”thick” /]

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.Investment advisory services and insurance services are provided through The Retirement Solution Inc., a Registered Investment Advisor.

Any economic and/or performance information cited is historical and not indicative of future results. The Retirement Solution Inc. is an investment advisor registered in each state The Retirement Solution Inc. maintains client relationships.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named representative,
Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

By clicking on these links, you will leave our server, as the links are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

[1] www.cnbc.com/2018/05/18/futures-point-to-higher-open-amid-us-china-trade-talks.html

[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[3] www.msci.com/end-of-day-data-search

[4] www.nytimes.com/aponline/2018/05/18/world/asia/ap-financial-markets-.html

[5] www.reuters.com/article/us-usa-trade-china/china-agrees-to-import-more-from-u-s-no-sign-of-200-billion-figure-idUSKCN1IK0PM

[6] www.latimes.com/business/la-fi-china-us-trade-war-on-hold-20180520-story.html

[7] www.reuters.com/article/us-usa-trade-china/china-agrees-to-import-more-from-u-s-no-sign-of-200-billion-figure-idUSKCN1IK0PM

[8] www.cnbc.com/2018/05/18/futures-point-to-higher-open-amid-us-china-trade-talks.html

[9] www.latimes.com/business/la-fi-china-us-trade-war-on-hold-20180520-story.html

[10] www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2018

[11] www.cnbc.com/2018/05/18/us-yields-fall-back-after-climbing-to-fresh-seven-year-peak.html

[12] www.marketwatch.com/story/us-stocks-set-to-end-the-week-on-a-higher-note-with-trade-talks-yields-in-the-spotlight-2018-05-18

SCHEDULE A FREE CONSULTATION

Providing for family, spending time with grandkids, traveling. You shouldn’t be wasting your golden years worrying about electric bills or the balance of your checking account. We’ve helped hundreds of people retire confidently and we can’t wait to do the same for you.

Contact Us

888-500-5830

info@theretirementsolution.com

Our Locations

REDMOND, WASHINGTON

MILL CREEK, WASHINGTON

ENGLEWOOD, COLORADO

KENNEWICK, WASHINGTON

CALL NOW
SEND EMAIL