Investment Insights: In the black after Labor Day

Wade Balliet
Posted by Wade Balliet
Investment Strategy

This weekly report presents insights from our Global Investment Management team.

Trade war headlines have done nothing to slow surging manufacturing demand.

Urban skyline in Canada, with Canadian flag in a corner of the sceneThe ISM Index, a survey of the sentiment of purchasing managers at 300 manufacturing firms, bested all forecasts and signified how robust the manufacturing sector has become. The index reached levels not seen since March 2004. Month-over-month new export orders are unchanged again, as they have remained flat since April, despite tariff uncertainty. The manufacturing sector’s continued resilience and ability to shrug off trade war concerns is indicative of the larger U.S. economy.

The U.S. and Mexico continued making progress, as they reached preliminary agreements on auto content and labor-rate rules. The trade war between the U.S. and its northern ally, Canada, got frostier this week with the declaration from the Trump administration that it’s not interested in compromising in order to make a deal. Despite this, and similar posturing from Justin Trudeau, this deal is expected to look similar to the deal the U.S. ends up striking with Mexico. Whether or not we will see two separate trade deals or a reworked NAFTA remains to be seen, but either way little is poised to change between the three countries.

Also making progress on the auto front was the EU, which offered to include U.S. autos in its group of duty-free import products. The U.S. and the EU continue to make increasingly steady progress towards trade resolution, proving that trade bluster is still resolved how it always has been. While the dust may be settling a bit in North America, progress between the U.S. and China remains a much more difficult problem, as a new round of $200B in tariffs has been threatened by the U.S. One casualty to this new round of tariffs has been the cancellation of Ford’s plans to import a new model from its Chinese plant. The trade war is not without its victims, and it does seem to be targeting auto manufacturers for the moment.

Turning to smaller economies, the emerging markets contagion continued to spread, with the Argentinian peso overtaking the Turkish lira to become the worst performing emerging market currency this year. As the dollar continues to strengthen, the breadth of weakening emerging market economies becomes more apparent. As investors seek safety in stronger economies and currencies, the emerging markets may see continued short-term pressures, despite the potential for higher rates of long term growth.

Still basking in the warm glow of tax cuts, corporate earnings impressed again this season. As the Trump administration mulls putting an end to quarterly earnings and the Fed mulls another rate hike, the U.S. markets have seen modest depreciation from their all-time highs of last week. Despite Amazon becoming a trillion-dollar company, the S&P 500 closed just under 2900. We expect volatility to begin making a comeback, but remain optimistic that the markets will continue their long run well through the end of the year.

Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. The information in this newsletter is for informational purposes only and is not intended to be investment advice or a recommendation. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.

Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.

International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.

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