Trade War Escalation Hits the Stock Market
August is traditionally a quiet month in the financial markets. Not this year.
The escalating trade war between the U.S. and China produced the most volatile week of the year in the stock and bond markets. Stocks had their worst day of the year on Monday as investors sold off risk assets and piled into the safety of U.S. Treasury bonds. The yield on the 10-year Treasury bond, which moves opposite to price, momentarily broke below 1.6 percent on Wednesday before stabilizing yesterday around 1.7 percent. Investors are now pricing in three more cuts in short-term interest rates by the Federal Reserve Board this year.
The price of oil is also reflecting extreme pessimism on economic growth. West Texas crude fell below $51/barrel on Wednesday before recovering to above $53 in the last two days. The shares of Hess Corp., the only oil and gas producer on the Entrepreneur Index™, was down 5.69 percent in the last five days despite a surge of more than four percent yesterday.
For all the sturm und drang of the last week, however, the major indexes were essentially flat, although futures markets suggest stocks are set to fall this morning. The Dow, S&P 500 and Nasdaq Composite were all down less than one percent in the last five trading sessions while the Entrepreneur Index™ had a gain of 0.24 percent.
Technology stocks had a particularly wild week, with the tech-heavy Nasdaq Composite index dropping more than three percent on Monday before staging a rally in the last three days. The FAANG stocks were all down sharply but recovered lost ground in the last three days. Chip-makers NVIDIA Corp. and Analog Devices, both highly sensitive to trade outlooks, were down 7.5 percent and 5.4 percent on Monday but recovered most of that ground by this morning.
Other trade-sensitive stocks also had a wild ride this week. Package delivery giant Fedex Corp. fell 5.5 percent on Monday but also bounced back, posting a gain of 0.68 percent over the last five trading sessions. Ford Motor Co. plunged on Monday but clawed back lost ground since then, in part thanks to an upgrade by a Morgan Stanley analyst on Tuesday. The stock, however, was down 3.53 percent on the week.
The apparel makers continue to struggle as worries about trade and global economic growth mount. Under Armour Inc., down more than 20 percent the previous week after reporting weak financials, was down 2.43 this week. Ralph Lauren and L Brands were down 1.68 percent and 2.59 percent respectively.
Financial firms were also volatile. As interest rates plunged early in the week, so did bank and finance stocks. Capital One Financial was down close to five percent on Monday before recovering as interest rates stabilized. It was down 1.7 percent in the last week. Investment bank Jefferies Financial Group fell 2.5 percent. The asset managers Blackrock Inc. and Franklin Resources were down 3.7 percent and 3.8 percent respectively for the week.
The longest economic expansion and bull market in U.S. history remains intact for the time being, but the trade war may end it. With President Trump committed to his tariff strategy and China possibly willing to expand the battle into a currency war, expect more volatility for the rest of the year.
The Entrepreneur Index™ collects the top 60 publicly traded companies founded and run by entrepreneurs. The entrepreneurial spirit is a valuable asset for any business, and this index recognizes its importance, no matter how much a company has grown. These inspirational businesses can be tracked in real time on Entrepreneur.com.