Trade War/ Tariffs
Trade battles and tariffs continued to dominate the news in Q2 2018. The trade battle between the U.S. and China ebbed and flowed, as the two parties momentarily announced that the trade war was effectively “on hold”, before President Trump announced that the U.S. would proceed with tariffs on Chinese imports. President Trump did, however, recently announce a deal to lift a ban prohibiting Chinese smartphone maker ZTE from purchasing U.S. parts.1In spite of an additional 1-month extension, aluminum and steel tariffs went into effect against Mexico, Canada, and the European Union at the end of May. Shortly thereafter, all three parties announced retaliatory tariffs in response. Tensions came to a boil during the G7 Summit, as President Trump refused to endorse a joint statement from the attendees.2
In April, South Korean President Moon Jae-in met with North Korean President Kim Jongun to discuss the denuclearization of North Korea and the possibility of striking a peace treaty between the two countries.3This landmark summit was followed by a meeting between President Trump and Kim Jong-un in Singapore. The North Korea-United States Summit yielded significant progress, as North Korea agreed to initiate complete denuclearization within its borders and the United States announced plans to suspend military exercises on the Korean Penninsula. While many feel that the agreement lacked specific details, the Summit still represented a postitive step in the right direction.4
Earnings Season Numbers
First Quarter earnings season came to close, with 77% of S&P 500 companies exceeding earnings per share (EPS) expectations, and 77% also exceeding revenue expectations.5The technology sector led the charge, with 90% of reporting companies exceeding earnings estimates.For Q2 2018, the estimated earnings growth rate for the S&P 500 is 19.0%. If achieved, this rate would mark the second highest earnings growth since Q1 2011 (19.5%).
Interest Rate Hike
The Federal Reserve announced a 0.25% increase in its benchmark short-term interest rate, bringing the new target range to 1.75-2%.6Chairman Jerome Powell also indicated that two additional rate hikes in 2018 seemed appropriate.Reasons stated for the rate increase included increases in household spending and business investments, along with continually decreasing unemployment (3.8% in May).
5. https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Ea... Insight_060818.pdf