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Weekly Wrap: Markets Get Blindsided

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Tematica Research

Coming into this week, market participants thought the big risk was going to be Federal Reserve Chairman Jerome Powell's first Monetary Policy Report - or Humphrey Hawkins testimony as it used to be called - in front of Congress. Turns out, that wasn't all that was to come from Capitol Hill.

Equity Markets - A Roller Coaster of a Week

Monday the markets opened with an enthusiastic risk-on mood. The Nasdaq Composite, Russell 1000 and S&P 500 all closed up more than 1.0%. The Russell 2000 (small cap stocks) continued to lag, gaining just 0.7%.

Then the punchbowl was pulled on Tuesday when new Fed Chair Jerome Powell gave his first testimony in front of Congress. The markets were not pleased. All the major equity indices lost more than 1% on the day.

As the markets digest Powell's testimony Wednesday morning - something Chris Versace, Tematica's Chief Investment Officer, and I focused on in this week's Cocktail Investing Podcast - equities tried to muster some enthusiasm, but couldn't pull it off. By the close of Wednesday's trading, the Nasdaq lost -0.8%, Russell 1000 and S&P 500 lost -1.1% and the Russell 2000 fell -1.6%, as small-cap stocks continue to underperform - never a bullish indicator.

Not to be outdone by Powell, the big risk for markets this week arrived on Thursday when President Trump announced that the U.S. will implement import tariffs of 25% on steel and 10% on aluminum.

Did we mention that the seventh round of NAFTA negotiations have been going on this week in Mexico? Timing…

How did U.S. equities respond?

In response to the President's comments, the Dow Jones Industrial Average, having gained more than 150 points earlier in the day, dropped 577 points, closing down 1.7% from the prior day. The S&P 500 dropped briefly below its 100-day moving average, losing 1.3% on

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Tematica Research profile picture
We see Investment themes at work and at play every day in the economy — oftentimes across industries and categories — and other aspects of day to day life. It is the opposite of the typical Wall Street approach to research, which oftentimes overly focuses on a single industry at a time and results in missed opportunities. These themes are identified by looking at the intersection of shifting economics, demographics, psychographics, technologies, mixed in with regulatory mandates and other forces. In other words, looking at the real world that companies are operating in! Some businesses will adapt, while others will leap frog ahead riding these thematic tailwinds to profits and significant share price movements, and sadly there will be those left floundering too. For every Apple, there is a Palm and Blackberry. For every Facebook . . . a MySpace or Friendster. For every Netflix, there’s a Blockbuster. The list goes on and on, even in non-technology categories. By examining these thematic tailwinds, our goal is to identify mispriced securities relative to the business opportunities ahead and avoid those that are overly valued and or staring down the barrel of significant headwinds

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Comments (1)

CapeHornInvesting profile picture
Great article. Lots of facts, very little innuendo, sarcasm, or over-interpretation. A breath of fresh air.
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