Renewed Trade Frictions Drag Stocks Lower for the Week

Renewed Trade Frictions Drag Stocks Lower for the Week

Major U.S. and international equity indexes declined on Friday, capping off what had otherwise been a relatively quiet trading week. Global equities, measured by the MSCI All Country World Index (ACWI), fell 2.09%, while U.S. equities, represented by the S&P 500, dropped 2.41%. The sell-off followed renewed trade tensions between the U.S. and China after President Trump announced he is considering higher tariffs on Friday in response to China’s new export controls on rare earth minerals.

Government Shutdown Enters Second Week

The federal government shutdown has entered its second week, reaching the 10-day mark as of Friday and becoming the fourth-longest shutdown on record. Lawmakers have left Washington, D.C., with the House of Representatives in recess and the Senate adjourned until Tuesday following a seventh failed vote on a continuing resolution to fund the government through November 21. Historically, the economic effects of government shutdowns tend to be small and temporary, as activity typically rebounds once operations resume. However, research shows that the longer a shutdown lasts, the more pronounced its economic impact becomes.

FOMC Meeting

Although the shutdown has brought most economic data releases to a standstill, investors were still able to glean insight from the Federal Reserve’s latest meeting minutes from its mid-September policy meeting. The discussion revealed a range of views among policymakers as they weighed conflicting economic signals. Officials generally agreed that inflation remains a persistent concern even as signs of labor market softening have become more apparent. Most members indicated support for additional policy easing later this year to help balance those risks, while others cautioned that monetary policy may not be as restrictive as previously thought, suggesting a more gradual approach to any future rate cuts.

Consumer Sentiment

Other notable market news: The University of Michigan’s preliminary October reading of its Index of Consumer Sentiment came in at 55, little changed from the prior month. The report presented a mixed view of consumer attitudes. Improvements in assessments of current personal finances and year-ahead business conditions were offset by declines in expectations for future personal finances and buying conditions for durable goods. Inflation expectations remained largely stable, with the one-year outlook edging down slightly to 4.6% from 4.7% in September, while long-run expectations held steady at 3.7%.

Looking Ahead

As we look ahead, third-quarter earnings season is set to begin, with the Financials sector taking center stage this week. Approximately 65% of the S&P 500 companies scheduled to report results during this period are from this sector. Financials are projected to deliver the fourth-highest year-over-year earnings growth rate among all eleven sectors for the quarter, at 13.2%. Results from major banks will offer an early gauge of credit conditions, loan growth, and overall consumer health as earnings season gets underway.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.