Stocks almost made it through the week unscathed but fell victim to the U.S.-China trade dispute once again on Friday. Following an announcement by China of additional tariffs, Trump ordered U.S. companies to start looking for alternatives to China. The heightened rhetoric, combined with attacks by the president on the independent Federal Reserve, stoked investor concerns that a resolution may not be close.
As investors, there are some things within our control and others over which we have no influence. The trade dispute is the latter. Looking back over the past decade, we were regularly facing a looming crisis threatening to bring down the recovery. We loved to give these pain points clever names… Taper Tantrum, Brexit, the European Sovereign Debt Crisis (okay – that name was not that clever). Yet over the past 10 years, the S&P 500 has produced a total return of over 250%! Sitting on the sidelines, or overreacting every time uncertainty rears its ugly head, is a recipe for long-term underperformance. Do we know how this trade war will end? No. That is out of our control and unpredictable. But we do know we have done what we can to position our portfolios for long-term success.
Headlines this Week
The White House gave Huawei Technologies a 90-day extension to continue doing business with U.S. companies. Huawei Technologies, a Chinese telecom giant, was placed on the export blacklist in May after the White House expressed some concerns regarding national security.
Fed Minutes and Jackson Hole
On Wednesday, Fed officials reiterated that July’s rate cut is not the beginning of a lengthy monetary easing policy. However, during the Fed’s Jackson Hole event on Friday, Fed Chairman Jerome Powell said that the Fed is watching trade conflict between the U.S. and China and will be flexible with the monetary policy and respond accordingly.
China announced that they are imposing retaliatory tariffs on $75 billion in American goods to take effect on September 1st. In addition, on December 15th China will slap American automobile producers with a 25 percent tariff and 5 percent tariff on auto parts.
The Week Ahead
Focus this week will be on the G7 Meeting taking place in Biarritz, France.
- Experts will be watching to see what type of discussion will take place around current issues, including the U.S./China Trade War.
- The stated theme this year is “Fighting Inequality,” and as such, host nation France has invited several other countries to attend the meeting, including Australia, Egypt, and South Africa.
- President Trump has voiced support for readmitting Russia into the group to re-form the G8 but has not received support from the other member countries.
In the U.S., the Personal Consumption Expenditure figures will be released for the 2nd quarter.
- The PCE is a measure of price changes in consumer goods and services.
- Unlike the Consumer Price Index (CPI), the PCE counts both urban and rural demographics in its calculations.
The U.S. will also release its second, and more official, GDP numbers for the 2nd quarter.
A couple of our portfolio companies release earnings next week, including Dollar Tree, Inc. (DLTR) and Ulta Beauty, Inc.(ULTA).
- Analysts expect Ulta Beauty to perform well this quarter on the back of strong online sales.
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