Trade fears drove stocks to their worst week of the year, down 2% after President Trump placed higher tariffs on $200 billion of Chinese goods and threatened fresh tariffs on an additional $325 billion in Chinese goods after the Chinese reportedly backed out of a trade agreement. It could’ve been worse, but talks in Washington, D.C., were reportedly constructive, according to Treasury Secretary Steven Mnuchin, which helped stocks get back some of the losses from earlier in the week.
“Keep in mind that even with Monday morning’s losses, the S&P 500 Index is still only about 4% below the all-time high,” said LPL Chief Investment Strategist John Lynch. “In the past, by this time of the year, stocks have typically pulled back 8–9%, so even though fundamentals still look pretty good to us, a pickup in market volatility should be anticipated.”
Last week’s sector performance clearly reflected trade concerns, with globally exposed sectors—industrials, materials, and technology—pacing the decline, as shown in the LPL Chart of the Day. These sectors have among the highest percentage of international revenue, and in China in particular.
Materials companies have a lot at stake here because China has reportedly offered significant agriculture purchases as part of a potential agreement. Copper prices fell last week, reflecting fears of weaker Chinese demand if tariffs remain in place. Industrials and technology sectors have high exposure to China, particularly aerospace and defense, machinery, and semiconductors.
For more of our thoughts on U.S-China trade tensions, please see our Weekly Market Commentary later today.
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