Things Finally Start to Calm Down at Home While Geo-Political Unrest Sparks Market Activity Overseas

The trade war sent the markets on a wild ride last week, but—surprisingly—the S&P 500 ended last week largely unchanged and just over 3% away from all-time highs. Despite hitting several all-time highs in the last 18 months, the S&P 500 has made no meaningful gains as we are reminded that losses require an outsized gain to break even. Volatility is still a source of concern—should we brace ourselves for a more sustained fall? Overall though, it was a quiet weekend for the U.S. markets, and most headlines this morning are coming out of Europe and Asia, where geo-political unrest is making its presence felt in the markets. The protests in Hong Kong escalated this morning when thousands of protesters occupied Hong Kong International Airport, causing authorities to halt all flights. CNBC’s Jim Cramer calls the protests both “more serious than the trade talks” and his biggest worry for the markets. Meanwhile, political turmoil in Italy and Argentina have lead to stocks tumbling, and a surge in the probability of Argentina defaulting on their five-year bonds.

1. Although year-to-date returns have been strong, an intermediate-term view tells a different story. 

Source: Alpine Macro, as of 8/12/19

2. Transports are breaking down.

Source: The Chart Store, as of 8/12/19

3. While utilities are close to all-time highs. 

 Source: The Chart Store, as of 8/12/19

4. Small-caps have significantly lagged large-caps.

Source: The Chart Store, as of 8/12/19

5. An update on the yield curve.

Source: The Chart Store, as of 8/12/19

6. An interesting depiction of the U.S. labor force.

Source: WSJ Daily Shot, as of 8/12/19

7. Protests are showing up in the economic data for Hong Kong.

Source: Refinitiv, as of 8/12/19

8. While political turmoil in Italy has led to a market slide.

Source: WSJ Daily Shot, as of 8/12/19

9. And Argentina’s electoral results clearly took market participants by surprise.

Source: Koyfin, as of 8/12/19

10. Default probability on five-year bonds has jumped to over 70% in response to the election results as well. 

Source: Holger Zschäpitz, as of 8/12/19

11. The U.S. dollar continues to strengthen amid trade uncertainty, but if the trend continues it could end up being a drag on economic growth.

 Source: FRED, as of 8/12/19

12. Meanwhile, the British pound hit a 10-year low as fears for a “no-deal” Brexit increase.

 Source: WSJ Daily Shot, as of 8/12/19