August’s final week is anticipated to be characterized by high volatility since markets are worried about the economy along with the development of trade wars. The United States President, Donald Trump, will meet with the G7 leaders in France this coming weekend. President Trump is to talk about the US economy and mention key features to improve the economy under his rule.
Over the last week, China imposed more sanctions against the US, further straining relations between the two countries. This led to President Trump encouraging American companies seeking trade with other companies apart from China to continue & those still trading with China to seek other options. Speculation on the US economy sinking into recession has also begun.
On Friday, stocks fell at 2.5%, and trading was volatile. The State Street advisors chief investment strategist Michael Arone anticipates that due to worsening trade tensions, the trade war may escalate in the remaining months of this year. President Trump continues to stir up conflict with the Fed and China as he makes remarks about each of them.
On Friday morning, Jerome Powell, chairman of the Fed was speaking at Jackson Hole. He made it clear that the Fed was uncertain about stock market prices and he did not promise there would be rate cuts, although he left room for them. Business spending is said to be suffering due to the trade wars and chances are high it may continue receiving blows and may lead to depreciation of the consumer economy.
In August, the S&P 500 has gone down about 4.5%. On Friday alone, the S&P was down by 3%. The month of August had 17 trading days and nine of which saw 1% moves in the S&P 500. The market is said to be expecting about three or more cuts to come this year.
“I think the Fed is uncharted territory, and I continue to have empathy for chairman Powell. I think markets want faster and more aggressive policy. He’s dealing with challenges the Fed has never had.” said Michael Arone, State Street Advisors chief investment strategist. At this point, it is very unclear what these trade wars could mean for the market and the economy in the week ahead.
Michael Arone went on to say, “Powell is walking a tightrope. He has the president who is daily bashing him. Bond markets are demanding a much higher number of rate cuts, and he’s got geopolitical challenges, whether its Brexit or trade. He’s also got dissension among Fed voting members. That’s a lot to balance,” he said.
The most important question posed by Michael Arone is whether or not the Fed chairperson Jerome Powell is capable of maneuvering his way and controlling the market policies amidst these trade wars. The situation is getting tense and the economy suffering a great deal due to the current trade wars.
Nomra’s executive director, Frank Capelleri, said he expects volatility in the coming time. According to him, this is amongst the top three most significant declines this month. This similar decline last occurred in December last year, where ten days had a 1% move in the S&P 500.
“This is the third biggest decline we’ve had this month. Each of them started within 10 points of each other, near the top of the range. We are still trading range that has been characterized by sharp moves and acute turns, so I think when we had that initial drop on Aug. 5, the question is where is it going to stop” said Cappelleri.
Frank Cappelleri further added that traders were watching to see if the level on Aug. 5 would remain steady. Markets shall focus on trade and economy in the coming weeks due to the trade war and uncertainty.
Since last year’s December, there have not been great falls in trading ranges until this month. This coming week remains uncertainty as no one knows the outcome. The growing question is whether the trade cut rates will be decreased and what tariffs and policies the Fed executive will put in place. Investors are keeping a close eye on the data and trying to determine the effect on the economy, durable goods, and consumable goods.
The increasing war between president Trump and China also plays a significant role as sanctions keep adding, and the economy fears recession. The week ahead is highly uncertain and can change the game in the trading industry significantly.
Make sure to keep updated on all trading news this coming week so you can stay updated and be aware of the recent developments. If you are an investor, it’s important to tune in to keep updated on the stock and how the economy might be affected in the near future.