Market Summary

Global equities rose broadly last week on indications of improving trade relations between the U.S. and China, as well as potential initial signs of stability in Turkey’s currency. High-yielding, non-cyclical sectors, most notably consumer staples and real estate, outperformed cyclical growth sectors like information technology in U.S. equity markets this past week as investors rotated toward more defensive equity exposure. As a result, the Dow Jones Industrial average rose 1.4% for the week, a move that took it to its highest level since February, while the S&P 500 gained 0.6% and the Nasdaq fell -0.3%, although both remain within striking distance of all-time highs. Meanwhile, the spread between the 2-year and 10-year U.S. Treasury yields fell to just 0.25% to close out the week due to increasing demand for the safety of the 10-year U.S. Treasury bond.

With the second quarter earnings season almost in the books, trade remains a key focus for investors. The latest trade development between the U.S. and China gave some breathing room for optimism. The Wall Street Journal reported that negotiators in both nations are setting a date at the end of November to seek resolution of the trade dispute. However, this coming week also brings the start of 25% tariffs on $16 billion in Chinese imports.

Investors are also closely monitoring the ongoing concerns of Turkey and Italy this week.  Both nations are suffering from high inflation and large debt burdens that are negatively impacted by rising rates and the strengthening U.S. dollar.  While U.S. companies have a small amount of direct exposure to either country, concerns abound that weakness could spread into other regions and potentially signal a broader downturn in overall economic growth. However, the Turkish lira did show some initial signs of stabilization as it rebounded up 6.8% this past week after the Turkish central bank pledged support for the banking system and the nation received a $15 billion pledge of investments from Qatar.

Economic Highlights

• Manufacturing: The pace of U.S. industrial production growth slowed to 0.1% month-over-month in July (4.2% year-over-year) after growing at an average rate of 0.5% per month over the previous five months. The slowing pace may be an indication of the growing pressure from trade tensions and tightening monetary policy.
• Consumer Sentiment: The preliminary reading of the University of Michigan Consumer Sentiment Survey showed a decline in the July reading as the index dropped to 95.3 from the prior month and consensus reading of 97.9 as trade and geopolitical concerns weighed on consumer confidence. The final July sentiment reading will come out on August 31st.

US Economy - The Week Ahead

Tuesday, 8/21/2018

No Data

Wednesday, 8/22/2018

Existing Home Sales – Consensus Estimate: 5,400K (0.4% MoM), Prior Month: 5,380K (-1.3% MoM)

Thursday, 8/23/2018

Initial Jobless Claims – Consensus Estimate: 215,000 (1.4% WoW), Prior Week: 213,000 (-0.5% WoW)
New Home Sales – Consensus Estimate: 645K (2.2% MoM), Prior Month: 631K (-8.4% MoM)

Friday, 8/24/2018

U.S. Durable Goods Orders Month-over-Month Growth – Consensus Estimate: -0.25%, Prior Month: 0.84%
Fed Chairman, Jerome Powell, speech on Monetary Policy in a Changing Economy in Jackson Hole, Wyoming