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Aug 22 2018

8/22/18 Market Notes

The big headlines came after the market closed within a small fraction of its January record high. All
major U.S. stock indexes ended higher as Consumer Discretionary and Telecom shares helped lead
the market higher. Strong earnings from the retail sector helped lift shares of Home Depot (HD) and
Nike (NKE) by about 1% each, while a rally in technology shares helped lift Intel (INTC) shares by
2.41%. Of course all eyes and ears were fixated on the outcome of the Paul Manafort trial and
Michael Cohen plea deal, and the potential implications for President Trump and his administration.
From an investment perspective, these events are unlikely to impact the Trump administration’s
policies and should therefore be viewed as inconsequential when making investment decisions.
However, President Trump’s announcement at a Tuesday evening rally that he plans to “slap at 25%
tariff on every car coming out of Europe” could prove dangerous for investors.

Although stocks rallied on the news that Shino-American trade talks are set to resume, a bit of caution
is warranted as talks between Mexico and the United States, which until about 1 ½ weeks ago were
reported as going very well, abruptly broke off last week. Moreover, while the U.S. trade delegation
has stated that they wanted to make Canada a priority, there is little sign by Ottawa that recent
proposals are even under consideration by our neighbor to the north. And President Trump’s
comments about tariffs on European made cars are likely to be met with a cold shoulder by the ‘oldworld’.

After renewed criticism of Fed Chairman Jerome Powell by President Trump, and (baseless)
accusations that Europe and China were manipulating their currencies, the U.S. dollar sold off slightly
on Tuesday, while U.S. Treasury yields ended lower with the benchmark Ten Year Yield ending
below 2.85%. The strength of the U.S. dollar is almost solely attributable to the strength of the U.S.
economy and consequently diverging Monetary Policies from the major Central Banks of the world.
Japan remains stuck in a zero inflation cycle, while Europe (as a whole) continues to contend with
subpar growth and weakness in the southern regions of the continent. All the while Britain’s Central
Bank is attempting to discern the impact of Brexit, while the People’s Bank of China is dealing with
an internal debt crisis. All of these factors are pushing these Central Bank’s to either remain
exceptionally accommodative in their policy approaches of become more accommodative. All the
while, the U.S. Fed is taking precautionary steps to ensure that our economy does not overheat and
that inflationary pressures remain at bay while wage growth remains tepid. In other words, based on
interests and policy direction, the U.S. dollar should trade at a premium at this time.



The GGFS Investment Committee