China and tariffs are dominating the headlines right now. Trade tensions between the U.S. and China are being blamed for the recent stock market decline. The two sides are apparently far apart on a deal. as President Trump announced more tariffs going into effect on Friday. And so, because tariffs are bad for commerce, it logically follows that stock prices would fall.
But is this actually the reason stocks have fallen in recent days?
Maybe. But I have another take, which doesn’t involve leaning on the news in hindsight to explain why the market behaved how it did.
Before I go further, let me say that I remain bullish. One bad week doesn’t change that. In regards to last week, it is not surprising that stocks pulled back from recent highs. This is quite common when prices approach previous highs. Take a look at the following chart of the S&P 500 index. After it eclipsed the previous high set back in Sept. 2018, notice the trouble the market has had holding onto those gains (horizontal blue line)…
It is not unusual for sellers to show up near previous highs like they are doing here. This can occur independently of a trade war. There is no way to know what motivates each investor to buy or sell. Since we do not attempt to guess as much, we certainly would not peg a market rise or fall to the odds of a trade deal being struck.
There is pretty clear resistance around the 2,925 level for the S&P 500. It might take a couple knocks on that door in order to blow it open to more meaningful highs that actually stick.
If prices slide further from here, we may reduce certain positions if we believe that more losses will ensue. We did this a bit last week, but are still looking to buy if stocks can find some footing. As such, we are sitting on a decent cash position in most accounts. This should be temporary, but I believe it is prudent in the short-term given last week’s move.
As always, if you have questions about where the market is at or want to discuss your portfolio risk to check that it is aligned with what best fits you, feel free to contact me directly.
In The Market...
The S&P 500 fell -2.0% last week. Let's look under the hood:
The S&P index had its worst loss since early March, as every major stock sector was in the red. The bond market provided a nice hedge of sorts, as investor demand to migrate into bonds pushed bond prices higher.
We were a bit more active than normal last week. A couple of our stop-loss orders triggered, which means a portion of a position was sold when its price fell to a specified value. Meanwhile, we purchased a Semiconductor sector fund (XSD), as we believe it has the potential to rally after falling some -9% from its recent peak. This is the same fund we owned a number of weeks ago and had sold near the previous top. Given its pullback I think it once again looks appealing to own.
In Our Portfolios...
What's New With Us?
I am going to switch up this blog in the coming weeks. Instead of doing a written post I will instead post a brief video containing our weekly update, narrated by me. I think it may be a bit more engaging so I welcome your feedback when we make that change.
On a personal note, we enjoyed a nice Mother’s Day that included going to dinner at Anthony’s along the waterfront. Since the weather was so great I stained our new fence, which is nearly finished.
Have a great week!
Brian E Betz, CFP®