Investment Commentary –June 19th, 2018

Year to Date Market Indices as of Market Close June 19th, 2018
Dow 24,700 (1.03%)
S&P 2,762 (4.28%)
NASDAQ 7,725 (11.91%)
Gold $1,277 (-3.24%)
OIL $65.13 (9.30%)
Barclay Bond Aggregate (-1.85%)
Fed Funds Rate 2.0% (last increase was 6/13/18)

Dow closes lower for a 6th straight session as tariff tantrum drags stock market lower

U.S. stocks finished in the red on Tuesday, albeit off session lows, as investors shed stocks following President Donald Trump’s late-Monday threat to slap an additional $400 billion in tariffs on China goods. The announcement represented the latest escalation in a tit-for-tat dispute between the No. 1 and 2 largest economies in the world, rattling investors.

What did the main benchmarks do?

The Dow Jones Industrial Average DJIA, -1.15% fell 1.2%, or 287.26 points, to close at 24,700.21, dragged down by sharp losses in trade-sensitive, industrial stocks Boeing Co. BA, -0.07% Caterpillar Inc. CAT, -3.62% and 3M Co. MMM, -2.34% At its intraday nadir, the Dow was down by as many as 420 points.

Tuesday’s decline marked the sixth straight drop for the blue-chip gauge, representing the longest such skid since March 2017, a string of down days that has erased all of 2018’s gains thus far. The Dow is down about 0.1% year to date.

GE Kicked Out of Dow, the Last 19th Century Member Removed

General Electric Co., its stock gutted as management struggled with a slump that wiped $120 billion from its value, suffered a crowning ignominy Tuesday as overseers of the Dow Jones Industrial Average kicked the company out of the stock gauge it has inhabited for more than a century.

The one-time industrial powerhouse will be replaced by Walgreens Boots Alliance Inc., the Deerfield, Illinois-based drugstore chain created in a 2014 merger. The change will take effect prior to the open of trading next Tuesday. Down 26 percent, GE is the worst performer in the Dow in 2018, as it was last year, as well.

“It was an issue not of if, but when,” said Quincy Krosby, the chief market strategist at Prudential Financial Inc. “The GE that was dominant in the Dow in the 70s and 80s is no longer the same GE.”

The change means the last original Dow member has finally been removed from the benchmark formed in 1896, with GE joining the likes of Distilling & Cattle Feeding, National Lead and U.S. Rubber. GE briefly left the index, but has been in it continuously since 1907.

Around the Web:

Picking up the pace: As expected, the U.S. Federal Reserve approved its third interest-rate increase in six months. Fed policymakers also signaled that they could accelerate the pace of rate hikes this year, resulting in the potential for four rate increases in 2018, up from an earlier projection of three.

Trade tensions: The stocks of trade-dependent industrial firms and agricultural companies were among the hardest hit in the broad market as the long-running trade dispute between the U.S. and China escalated on Friday. The Trump administration imposed 25% tariffs on $50 billion worth of Chinese goods; Chinese leaders vowed to retaliate with an equal magnitude of tariffs on U.S. goods.

Small-cap record: The Russell 2000 Index, a small-cap stock benchmark, climbed to a record high on Tuesday. The index was up nearly 10% year to date through Friday, significantly ahead of U.S. large- and mid-cap indexes.

Sector winners and losers this past week:

Bueno: Utilities, Conglomerates and Services
No Bueno: Consumer Goods, Financial, Basic Materials and Industrial Goods
Year to date Leaders: Services, Technology, Conglomerates.

Upcoming events:

Other Notable Indices (YTD)
Russell 2000 (small caps) 10.82
EAFE International -0.76
EAFE Emerging Markets -1.80
Shiller Annuity Index 7.59

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.