Investment Commentary –September 18, 2018

Year to Date Market Indices as of Market Close September 18, 2018
Dow 26,246 (6.18%)
S&P 2,904 (8.63%)
NASDAQ 7,956 (15.25%)
Gold $1,202 (-9.50%)
OIL $69 (19.21%)
Barclay Bond Aggregate (-1.52%)
Fed Funds Rate 2.0% (last increase was 6/13/18)

Tech Rebound Fuels Stock Gains Amid Trade Tensions: Markets Wrap

Global equity markets climbed Tuesday, shrugging off the latest salvos in the trade war between the U.S. and China. Treasuries retreated and oil rose.

President Donald Trump announced 10 percent tariffs on $200 billion in Chinese goods to start later this month. The rate would jump to 25 in January if Beijing refuses to offer concessions. China, in return, said it would levy duties on $60 billion of U.S. goods.

Still, the S&P 500 Index registered its biggest gain in almost three weeks, led by technology stocks, which had been hammered in Monday’s session. Asia equities recovered from early weakness, with benchmarks in Japan and Shanghai jumping. The Stoxx Europe 600 Index also closed higher.

“The market is properly looking at this as a type of de-escalation of the escalated tensions,” said Brian Jacobsen, a multi-asset strategist at Wells Fargo Asset Management. “The 10 percent tariffs are weaker than the 25 percent originally threatened. China retaliated with $60 billion compared to the U.S.’s $200 billion. This could be the start of the tapering of trade tensions.”

Coca-Cola Is Eyeing the Cannabis Market

Aurora Cannabis Inc. led pot stocks higher after Coca-Cola Co. said it’s eyeing the cannabis drinks market, becoming the latest beverage company to tap into surging demand for marijuana products as traditional sales slow.

Coca-Cola says it’s monitoring the nascent industry and is interested in drinks infused with CBD — the non-psychoactive ingredient in marijuana that treats pain but doesn’t get you high. The Atlanta-based soft drinks maker is in talks with Canadian marijuana producer Aurora Cannabis to develop the beverages, according to a report from BNN Bloomberg Television.

“We are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world,” Coca-Cola spokesman Kent Landers said in an emailed statement to Bloomberg News. “The space is evolving quickly. No decisions have been made at this time.” Landers declined to comment on Aurora. Aurora’s shares surged on the news, jumping as much as 23 percent Monday in New York to $8. Other stocks in the cannabis industry got a boost, with Tilray Inc. adding as much as 9.4 percent in response to Coca-Cola’s interest.

Coke’s possible foray into the marijuana sector comes as beverage makers are trying to add cannabis as a trendy ingredient while their traditional businesses slow. Last month, Corona beer brewer Constellation Brands Inc. announced it will spend $3.8 billion to increase its stake in Canopy Growth Corp., the Canadian marijuana producer with a value that exceeds C$13 billion ($10 billion).

How trade-war fears have become less of a factor for stock-market investors

A measure of geopolitical risk has dropped back below historical averages

One of the supposedly biggest risks facing the U.S. stock market has so far proven a nonfactor, with equity benchmarks levitating near record levels despite rising tensions on trade policy.

For months, investors have said that the prospect of a trade war between the U.S. and other major economies was the most severe threat facing Wall Street. However, even as this issue has shown signs of escalating, with President Donald Trump announcing $200 billion tariffs against China on Monday and the country swiftly retaliating, fear has yet to really show up in the market.

Despite the apparent rise in tensions, investors have repeatedly ignored off the issue, choosing instead to focus on strong economic data and rising corporate profits, two factors that have helped power major indexes higher.

According to the latest monthly survey of fund managers by Bank of America Merrill Lynch, a net 69% of those polled said the U.S. is the most favorable region when it comes to earnings expectations, a record level in the 17-year history of the survey.

Market participants still say that the trade issue could escalate into something more severe — resulting in steep losses for stocks, as has already been seen in emerging markets— but the issue seems to be losing its potency. According to the fund-manager survey, 43% of those polled said that a trade war was the biggest “tail risk” facing markets. No other issue was named as often, but even this represents something of an easing of concern. In the previous month’s survey, roughly 55% of respondents said it was the biggest risk.

Around the web:

Bouncing back: The major stock indexes rose around 1% for the week, making up ground after declining the previous week. The S&P 500 and the NASDAQ remained slightly below their record highs set in late August, while the Dow was about 2% shy of its record set in late January.

Factories humming: U.S. industrial output rose more than expected in August, largely because of increased production of vehicles and automotive parts. Overall, industrial production was up 4.9% compared with the same month a year earlier.

Inflation moderation: Despite recent upticks in wages and consumer prices, inflation softened during August. The Consumer Price Index rose at a 2.7% annual rate last month, down from 2.9% in July. A separate report showed retail sales growth slowed in August relative to July’s rapid gain.

Other Notable Indices (YTD)

Russell 2000 (small caps) 11.89
EAFE International -3.13
Emerging Markets -6.59
Shiller Annuity Index 13.29

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.