Looking Back – May 2018 Market UpdateSubmitted by Strauss Financial Group, Inc on June 7th, 2018
Global Tensions – May 2018
1.) The month of May saw a variety of headlines and proclamations on the global front. The month began with the news that the U.S. would extend exemptions on steel and aluminum tariffs on imports from Mexico, Canada, and the European Union.1 While this extension led to initial optimism that a compromise could be reached, a 25% tariff on steel imports and a 10% tariff on aluminum imports went into effect Midnight of May 31.2 In response, the European Union has announced plans to place $7.5 billion in levies on U.S. exports, while Mexico announced that it plans to match the tariffs that the U.S. is imposing.
2.) The trade battle between the U.S. and China also experienced several ebbs and flows. Mid-way through the month, the two parties announced that the trade war was effectively “on hold”. China agreed to purchase $200 billion in American goods, which would significantly reduce the $335 billion annual trade deficit between the two countries.3 However, less than two weeks later, President Trump announced that the U.S. would proceed with tariffs on $50 billion of Chinese imports.4 Commerce Secretary Wilbur Ross is set to arrive in Beijing to continue talks aimed to decrease trade tensions.
3.) U.S. relations with North Korea also fluctuated over the course of the month. Early in the month, on the heels of the Korean peace treaty, President Trump announced that he would be meeting with Kim Jong-un on June 12th .5 However, two weeks after the initial announcement, the President announced that the previously planned summit had been called off.6 Recently, U.S. and North Korean leaders met in an attempt to resurrect the summit between the two countries.
4.) In other international news, Wal-Mart finalized a deal to purchase a 77% stake in Indian e-commerce giant Flipkart for $16 billion.7 The deal gives Wal-Mart access to Flipkart’s 100 million users, as well as the largest market share in a rapidly growing Indian economy.
5.) Small-cap companies as a whole continue to be less affected by ongoing tariff developments. The smallcap index has more than doubled the YTD performance of the S&P 500 index (SC: +4.74%; S&P: +2.28%).8 Additionally, 80% of small businesses surveyed expect to be doing better in one year. Reasons for this optimism include lower tax rates and continually improving sales numbers.9
6.) While some companies have experienced significant gains on the heels of reporting Q1 earnings (Facebook up 10.1% since reporting earnings), the market as a whole remained relatively unimpressed with companies that exceeded expectations in the first quarter. Conversely, companies that did not meet expectations were judged more harshly than in years past.
7.) Oil prices continued to climb, due to recent sanctions on Iran and Venezuelan prodution cuts, and many experts are forecasting gas prices rising as high as $4/gallon. Increased gas prices have some analysts worried, as four of the past five recessions (1973, 1980, 1990, 2008) were preceeded by a sharp increase in the price of oil. However, unlike past episodes, the potential doubling of the price of oil shouldn’t have as pronounced of an effect on the U.S. economy. Any negative impact on consumer spending could very well be offset by the positive impact of increased domestic production.9
8.) The Wall Street Journal published a review of documents produced for 1,450 different cryptocurrency ICO’s (initial coin offerings). The review found that roughly 20% of funds raised in ICO’s were “red-flagged” with issues ranging from plagiarized investor documents and fake executive teams to promises of guaranteed returns.
Additionally, cryptocurrency stalwart, Bitcoin, is down roughly 60% since the Chicago Mercantile Exchange began allowing futures trading on the currency (This represents the date that professional traders were first able to short Bitcoin).
9.) Kiplinger, Volume 95. No. 19
11.) The Outlook - April 9, 2018 Volume 90 Number 14
Top U.S. Performing Sectors for May 2018
- Technology: +7.1%
- Industrials: +2.7%
- Energy: +2.5%
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