Weekly Review

 

The stock market recorded moderate gains with the S&P 500 notching another all-time record high on Friday, the first time since January 26th of this year. Bonds also fared well with U.S. Treasury yields decreasing modestly during the week. President Trump's publicly pronounced unhappiness with Federal Reserve Chair Jerome Powell for raising interest rates in addition to voicing his desire for Fed policymakers to keep interest rates low may have helped boost buying demand for Treasuries, sending yields lower. Because U.S. Treasury yields are substantially higher than many other industrialized nations, U.S. Treasuries remain attractive investments for foreign buyers.

 

President Trump also publicly blamed both the European Union and China of manipulating their currencies to weaken them relative to the U.S. dollar in an effort to boost their exports to the U.S. Although low-level trade talks between the U.S. and China took place in Washington, D.C. during the week, no real progress was made on tariffs and trade. In fact, last Thursday the U.S. began to enforce an additional 25% in tariffs on Chinese imports ranging from machinery to motorcycles while China retaliated with corresponding tariffs on U.S. products from coal to trucks. Trade resolutions may not be realized until later in the year when higher-level negotiations are scheduled to take place.

 

Meanwhile, the minutes from the Fed's July 31-August 1 monetary policy meeting indicated the Fed expects to next raise rates at its September meeting. Fed officials stated in the minutes that it would likely "soon" be appropriate to raise rates. There currently is a 96.0% probability rates will be bumped up another 25 basis points on September 26. Friday, in a speech at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming, Fed Chair Powell defended the gradual pace of the Fed's rate hikes saying that the "slow increases are appropriate given current levels of inflation and unemployment."