Market Notebook


Equities Come Under Pressure while Bonds Rally

Equities came under pressure last week while bonds rallied. Market participant’s attention was largely focused on the Fed and whether the Fed would offer up the rate cut everyone was expecting. The Fed did not disappoint and did indeed announce a rate cut. President Trump became the “bull in the China shop” so to speak, by announcing a new round of tariffs on China to begin September 1st. Equity market participants reacted poorly to this news with the resulting price action indicating a shift out of risk assets.

Tariff Announcement Leads to Volatility

The events of last week demonstrated that predicting market moves is difficult. While the threat of additional tariffs was possible, most observers did not believe it was probable that such a threat would be issued last week. As such, the threat of additional tariffs was not priced in. Once tariffs were announced, market participants quickly priced in the implications. While traders might have found last week disconcerting, long term investors should see the events of last week as “normal”. Investors holding a well constructed portfolio based upon a consistent methodology, executed well, have nothing to fear from periods like last week. In fact, periods of volatility can provide long term investors with attractive “discounts”.

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