The U.S. stock market fell for a fourth straight week last week, for its worst streak since May, with fresh threats in the ongoing trade war and recession fears to blame for much of the decline.
Amid a day of retaliatory back-and-forth between the U.S. and China on Friday, the yield on the 10-year Treasury note fell below the two-year rate for the fourth time in two weeks, creating what's known as an inverted yield curve. The five yield curve inversions since 1978 each preceded a recession, but by an average of 22 months, according to data from Credit Suisse.
Federal Reserve policymakers don't appear to be too concerned about an economic slowdown yet. The minutes from the Fed's last meeting in July show that, though the central bank reduced a key interest rate for the first time in 11 years, there's no "pre-set course" for future rate cuts. Fed Chair Jerome Powell said last week that the central bank "will act as appropriate" to sustain the U.S. expansion, but that trade policy is causing uncertainty and contributing to slower global economic growth.
Expect trade to continue to be a key topic this week. President Donald Trump said on Monday that China wants to negotiate a trade deal. The S&P 500 was up more 0.7% as of early Monday.
This week, we'll also get to see how the all-important U.S. consumer is doing. Two surveys of consumer confidence are scheduled for release, along with earnings from several retailers. Here's what to watch, and how it will affect your wallet.
What's happening: Uncertainty surrounding trade talks is back in focus once again. China said Friday it will impose new tariffs on $75 billion worth of U.S. goods and resume duties on American automobiles. Trump said he would raise tariffs on $300 billion worth of Chinese goods and order American companies to immediately start looking for an alternative to China.
After the S&P 500 fell 2.6% Friday, Trump said on Monday that leaders of the two countries will be "getting back to the table" to negotiate a deal. The index rose again on this news.
Why it matters: The ongoing trade war remains one of the biggest potential causes of market choppiness in part because of its implications for economic growth.
What it means for you: Friday is indicative of just how much trade-related surprises can rock the market. The market was trading higher briefly, with traders seemingly brushing off China's latest retaliation and assured by Powell's promises that the Fed would do all it could to sustain the economic expansion. After Trump began tweeting, stock prices slumped.
The only certainty when it comes to trade right now is there's likely to be short-term bumpiness whenever there's a setback in the ongoing talks. (U.S. and Chinese leaders are planning to meet for the next round of in-person talks in September.) That said, the stock market also rises on signs of progress.
What's happening: Each month, a variety of surveys seek to determine whether Americans are confident in the health of the U.S. economy — and what their future financial prospects might be. The Conference Board's survey for August is due Tuesday, followed by results from the University of Michigan on Friday.
Why it matters: Past sentiment surveys have indicated that consumers still feel confident. Other reports show they haven't cut back on spending or buying homes. But this week's surveys will reflect all the recent recession concerns and the market's wild ride earlier this month. Traders want to see if that's affected consumers.
What it means for you: Some market watchers say fear itself could lead to a recession. That's because when people don't feel confident about the future, they'll spend less money on big-ticket items, which in turn affects things like whether companies lay off employees.
What's happening: While the majority of companies in the S&P 500 reported second-quarter earnings in July and early August, several big retailers are doing so now. Home Depot, Target, Gap, and Nordstrom were among companies that reported last week — and corporate profitability was robust, even though company executives are concerned about the possible impact of tariffs.
This week, traders can expect quarterly results from Tiffany, Best Buy, Dollar Tree, and Campbell Soup, among others.
Why it matters: While the corporate earnings for these retailers captures shopping periods prior to the market's latest dust-up and recession worries, they show consumers continue to spend money. Meanwhile, it's not surprising that corporate leaders, just like many people on Wall Street, remain concerned about the ongoing trade war.
What it means for you: Earnings for retailers have generally been better than expected, which has helped to push many of their stocks higher. What's more, these companies are showing that consumers haven't pulled back on spending — which is important because consumer spending accounts for more than two-thirds of gross domestic product, or the total value of goods and services in a year.
September historically is the weakest month of the year for the S&P 500, according to figures from Yardeni Research, and this week could be a slow one for the market, heading into the Labor Day holiday. Any respite from the market's wild daily swings of more than 1% earlier this month will be welcome on Wall Street.
No matter what happens this week, or in the weeks to come, it's important to keep perspective. Just as the past several weeks have shown, the market can be very choppy in the short term, but it's important to remain consistent when investing for the long term.
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