Looking Back - March 2018 Market UpdateSubmitted by Strauss Financial Group, Inc on April 3rd, 2018
Looking Back – March 2018
- President Trump announced tariffs on steel and aluminum imports, with the goal of protecting American industries. The President granted temporary exemptions for U.S. allies Canada and Mexico.1 The plan also allows for other countries to apply for relief from the tariffs. Recently, South Korea became the first U.S. ally to receive an indefinite exemption from the tariffs. To receive such an exemption, one of the stipulations is that the country must reduce steel exports to the U.S. by 30% over the next three years.2
- The tariff announcement was met with some immediate negative feedback, both domestically and internationally. Gary Cohn, President Trump’s top economic advisor, resigned from his post less than one week after the President’s announcement.3 Additionally, China released a list of 128 U.S. products as potential retaliation targets in response to the tariffs. The list includes wine, fruit, and ethanol. While the statement did not list specific U.S. agricultural products, soybeans have also been noted as another potential area of Chinese retaliation.4 Since President Trump signed the order on March 8th, the 30 largest stocks in the S&P 500 have suffered major losses (Figure 1).
- On March 21, the Federal Reserve announced a quarter-point increase in the fed-funds rate, while reaffirming it’s December forecast of three rate hikes for 2018.5 While there are many implications of rate increases, including declining bond values, a rate hike should also strengthen the U.S. dollar, benefitting companies that conduct the bulk of their business domestically. Rate hikes are also seen as generally positive for the financial sector.
- Facebook found itself in a major scandal, as it was announced that the company was unable to prevent a third-party firm from accessing user data. Cambridge Analytica, a political data firm hired by President Trump’s 2016 election campaign, gained access to the private data of over 50 million Facebook users.6 CEO, Mark Zuckerbeg, issued an apology and will testify before Congress, but public trust in Facebook continues to wane (Figure 2).
- Representatives from North Korea, South Korea, and the U.S. agreed to meet in Finland to discuss denuclearization. Successful discussions could potentially ease geopolitical tensions, while also benefiting U.S. trade dynamics. By lowering political tensions, the U.S. would have a better opportunity to decrease trade deficits with China, Japan, and South Korea.7 Although the US currently runs a trade deficit, importing more goods than it exports, export activity is still critical for numerous US industries.
- Amazon continued to make headlines by exploring the possibility of acquiring locations from bankrupt retailer, Toys “R” Us. Amazon would not seek to continue the Toys “R” Us brand, but would instead seek to use the locations to further expand the company’s brick-and-mortar presence.8 Additionally, Amazon made news by adding over $300 billion to it’s market cap over the last four months, an amount larger than all but nine companies in the S&P 500.9 If the company’s market cap increases by an additional 29%, Amazon will be the first U.S. company to hit the $1 trillion mark (Figure 3).
- Recently, there has also been some speculation that President Trump is exploring ways to alter Amazon’s tax treatment, because he is worried that the company is putting too many mom-and-pop retailers out of business.10 Additionally, the President has expressed concern that the company is damaging the USPS by using it as a “delivery boy”. This recent attention from President Trump has caused Amazon shares to drop 10% during the final week of March.
- Apple has recently ramped up research & development efforts, in an attempt to drive future growth (Figure 4). The company has placed an increased emphasis on internal development, including exploring in-house production of screens for devices. Additionally, there is speculation that the company is working on developing many innovative products, including augmented reality headsets, and even a combination toaster/refrigerator.11
- U.S. stock market performance during this year’s NCAA Men’s Basketball Tournament has flown in the face of recent history. In the past 11 years prior to 2018, all three major indices have averaged gains of more than 2% during “March Madness”.12 Going into this year’s Final Four weekend, all three indices are down over 3%.
Top US Performing Sectors for March
- Real Estate: 3.3%
- Utilities: 3.1%
- Energy: 1.0%
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