A Recap of a Volatile Week in the Markets
Given the volatility we have experienced this week, we wanted to provide a summary of events that have impacted global stock markets. With the sharp decline suffered on Thursday, U.S. stock markets are down approximately 4% for the week. In fact, since hitting an all-time high 10 days ago, the Nasdaq Index is off nearly 6% since hitting the high. There have been several events this week that have driven this recent bout of volatility, which brought equity markets close to levels we reached back during the February correction. We remain steadfast in our belief that this bout of volatility is due to short term factors and is not indicative of a more pronounced or prolonged downturn, as we believe the probability of recession here in the U.S. remains low (which was supported this week by commentary from new Federal Reserve Chairman Jerome Powell).
So, what are primary causes of this selloff? Here are a few of the key events that have driven market volatility:
- News about a data breach at Facebook caused the stock to come under heavy selling pressure, with the stock down over 10% over the past week; This caused a more wide-spread selloff among large cap technology stocks, which brought the Nasdaq Index down for the week
- GDP growth in Europe slowed relative to the past quarter
- Trump announced $50 billion in new tariffs against China, which caused China to retaliate by levying $3 billion in tariffs against U.S. agricultural products and renewing fears over a “trade war”
- The Federal Reserve raised interest rates, which was widely expected, but more importantly raised expectations for modestly aggressive monetary policies in 2019 and 2020 relative to their previous communications
All of this caused a broad decline across U.S. stock markets, and a flight to quality resulted in bond yields to decline. This resulted in positive returns for safe haven assets like bonds and gold for the week. We believe this recent volatility will be short lived and we remain overweight stocks relative to bonds across our model portfolios. Still, we will continue to monitor the economy and markets for any signs of deterioration which would increase the probability of recession here in the U.S.
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