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The Fed, Trade and Oil supplies drove markets last week

by Fortem Financial September 23, 2019

The equity markets, following three consecutive weekly gains, declined last week as concerns relating to trade, Federal Reserve policies and oil supplies weighed on market sentiment. The Russell 2000® Index fell 1.17%; losses for the other indices included the Dow Jones Industrial Average (-1.05%), Nasdaq (‑0.72%) and S&P 500® (-0.51%). The week began with news of drone attacks, purportedly by Iran, on Saudi Arabia’s production facilities; the impact on production, 5.7 million barrels per day, was larger than the loss of Kuwait’s production in 1990. Early estimates from Saudi Arabia officials anticipate timely restoration of 70% of lost production; other sources, though, indicate that repairs could take weeks or months. In the meantime, Saudi Arabia is fulfilling delivery commitments by drawing down reserves and buying oil. Oil prices soared 14.7% on Monday, the largest increase since 2009. Oil prices declined from the Monday highs for a weekly gain of 6.7%; the attack focused attention on the geopolitical risk to world oil supplies.

On Wednesday, the Fed, as expected, reduced interest rates by 25 basis points; the vote, though, was not unanimous as two members voted for no change while one wanted a 50 basis point reduction. Chairman Powell left the door open for further rate cuts, as needed, in response to trade-policy uncertainties. Elsewhere, the United Auto Workers initiated a strike at General Motors, the company’s first labor dispute since 2007. The UAW is seeking higher wages and a rollback of some previous concessions made during the financial crisis. The impact of the strike, and the continued suspension of Boeing’s 737 Max production, will weigh on manufacturing output. The Organization for Economic Co-operation and Development (OECD) cited trade tensions and political uncertainties in cutting its 2019 global growth forecast from 3.2% to 2.9%.

This week, U.S. and Chinese officials met in Washington D.C. in preparation for the October resumption of trade discussions. Various reports suggested the meeting, however productive, ended early as the Chinese delegation cancelled a trip to Montana and Nebraska. Then, on Friday, President Trump held a news conference in which he moved away from last week’s suggestion of an “interim deal”; today, he stated that he was “looking for a complete deal . . . not . . . a partial deal.” The markets quickly declined on the news. Trade-related headlines continue to drive not only the markets but also Fed sentiment and investor strategies. Earnings season is still three weeks away; so, in the meantime, trade headlines will likely continue to determine market momentum.

Source: Pacific Global Investment Management Company

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

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Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

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The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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