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Weekly Market Review

24 September 2019

Clint McGarvin, CFA® | Portfolio Manager

Week Ending September 22, 2019

The U.S.

Large-caps declined about 0.5% last week, while small-caps were down a little less than 1.2%. For the second time this year, the Fed moved to support the economy cutting short-term rates by 0.25% to a range 1.75% to 2.0%. In its statement, the Fed noted that U.S. household spending has risen at a strong pace while business spending and exports have weakened.[i] The weakness in business spending and exports appears to be a reflection of the trade war, and at this time there is no end in sight unless one of the sides decides to make an agreement that is less than what they have stated they are seeking. The trade war is increasing the dissenting voices in the Fed Open Market Committee with three votes against the rate cut it needs to be pointed out that one of the dissents was because he believed a 0.5% cut was necessary while the other two wanted no cut. On the business spending topic, we received three readings of the manufacturing sector last week with all three highlighting that the manufacturing sector is growing, albeit slowly. First, there was the Empire State Manufacturing Survey that showed manufacturing in New York state expanded in August, but the growth slowed due to weakness in new orders and increased inventories.[ii] Second, the Philly Fed index showed the same trend, manufacturing conditions improved in August, but new orders declined.[iii] Third, the Fed released August industrial production numbers, which increased a solid 0.6% from July as the mining and utility sectors rebounded.[iv] On the other hand, corporations are looking for slower activity over the next six-months putting a little bit of a downward spin on what were three welcomed and positive reports.

Other reports of note:

Leading Economic Indicators index was unchanged from July to August with weakness in the manufacturing sector and the decline in the interest rate spread.[v]


Similar to U.S. equities, developed market equities declined about 0.5% last week while emerging equities dropped about 1.5%. The driver of international equity performance was likely the attack on the Saudi oilfield on September 14 and the ongoing uncertainty surrounding the trade war.[vi] Oil prices declined last week following the initial surge higher early last week following the increased sanctions on Iran rather than a military strike against the country.[vii] However, the decline in oil prices was rather muted following news of the sanctions, with Saudi Arabia announcing that the lost production will not be restored until the end of November. Thus if any additional shocks hit the oil market, Saudi Arabia would have no spare capacity to increase production to meet demand causing the global oil markets to fall deep into the under-supplied territory.[viii]


The news last week offers the opportunity to give a sigh of relief with the manufacturing numbers showing that conditions have improved, however slightly. The downside is that the leading indicators within the indexes, new orders, continue to move lower, thus tempering a more positive outlook. The economy is caught in the tug-of-war between the geopolitical drags, also known as the trade war, and the substantial macroeconomic policy support, e.g. Fed rate cuts, Europe, China, and Japan introducing additional stimulus programs to boost economic activity. The uncertainty surrounding the trade war has acted as a drag on business activity, manufacturing sectors around the world and exports have slowed, and the policy supports through lower borrowing rates have contained the downside while helping to boost consumer spending. It is largely the consumer that has helped keep the global economy out of a recession as the service sectors around the world remain the strongest segment of the economies.

Economic reports this week:

This week we get second-quarter GDP revision, another look at business spending with the durable goods orders and core durable goods orders as well as consumer spending and inflation with the personal consumption expenditures released late in the week. These reports will give us a deeper look into the business and consumer spending and perhaps confirmation that last week’s reports do in fact supply optimism.

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[i] CNBC (2019), Here’s What Changed In The New Fed Statement. Retrieved from
[ii] New York Fed ( Spetember 2019), Empire State Manufacturing Survey. Retrieved from
[iii] Federal Reserve Bank of Philidelphia (2019), September 2019 Manufacturing Business Outlook Survey. Retrieved from
[iv] Board of Governors of the Federal Reserve System (2019), Industrial Production and Capacity Utilization – G.17. Retrieved from
[v] The Conference Board (2019), The Conference Board Leading Economic Index® (LEI) for the U.S. Remained Unchanged in August. Retrieved from
[vi] CNBC (2019), Asia Pacific Stocks Inch Higher Amid US-China Trade Jitters. Retrieved from
[vii] CNBC (2019), Oil Falls 2% After Trump Orders Increased Sanctions On Iran Instead Of Military Action. Retrieved from
[viii] CNBC (2019), Oil prices rise slightly as Saudi supply risks come into focus. Retrieved from

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