1. Warning forward: Buckle up. The experience on Wall Avenue may get bumpy this fall.
From the trade war with China and oil sanctions on Iran to the midterm election, there must be loads of market drama within the coming months. That is to not point out President Donald Trump’s legal troubles, which look like deepening by the day.
It is not more likely to be a quiet 10-year anniversary of the 2008 financial crisis.
This time round, the market and the economy are coming into fall from a place of energy. The S&P 500 climbed to an all-time excessive on Friday, leaving it simply 4% away from 3,000. The Dow is not removed from its first document since late January.
However slightly below the floor, obstacles abound.
The most important supply of turbulence this yr is the one with the potential to cause a recession: the commerce struggle between the US and China. Trump imposed 25% tariffs final week on one other $16 billion of Chinese language items — and Beijing instantly retaliated.
Washington has vowed to maneuver ahead with tariffs on one other $200 billion of products. China has stated it could hit again — but it surely’s working out of American imports to tax.
The excellent news is that either side are speaking, leaving hope of a breakthrough. China’s Commerce Ministry stated on Friday that talks held in Washington final week have been “constructive and candid” and either side will keep in contact.
“Commerce wars are so mutually harmful,” stated David Kelly, chief international strategist at JPMorgan Funds, “that political stress ought to ultimately end in offers.”
Recession warning flashing yellow
The commerce battle threatens to warmth up inflation whereas concurrently slowing development, muddying the image for the Federal Reserve.
The US central bank is debating whether or not to hike rates of interest twice extra this yr — an final result that would draw the ire of Trump, who has repeatedly attacked Fed chief Jerome Powell. The Fed’s fee hikes have additionally helped fuel storms in emerging markets like Turkey and Argentina.
Despite the fact that the US economic system is robust, Powell is definitely conscious of the yellow lights flashing in Wall Street’s favorite recession indicator. The yield curve, the distinction between the two-year and 10-year Treasury charges, hit a post-financial-crisis low final week.
The flattening yield curve signals concern that the Fed could also be elevating charges too shortly. Earlier than virtually each recession, the yield curve has inverted, which means short-term charges are larger than long-term ones.
In the meantime, the Trump administration’s oil sanctions on Iran are scheduled to enter impact in early November. The lack of barrels from the world’s fifth-biggest crude producer will put further pressure on the already skinny oil market. OPEC might be compelled to behave when it meets in Vienna in early December.
After which there’s politics — which, as 2016 confirmed, is the last word wild card.
Nobody is aware of precisely how Trump’s authorized turmoil will have an effect on the midterms. However recent polls counsel Democrats have a great shot at retaking the Home. That raises the specter of impeachment proceedings in opposition to Trump.
Trump has warned his impeachment would “crash” the market. Whereas a crash appears far-fetched, impeachment discuss is one more impediment within the street forward.
2. Financial system watch: The federal government releases its second estimate for second-quarter financial development on Wednesday. The primary studying showed a 4.1% development fee, one of the best in 4 years. President Donald Trump boasted of a historic “financial turnaround” — a declare that requires context.
3. Spoiled soup: Campbell Soup ( studies earnings on Thursday and is predicted to wrap up a ) review of its troubled business. The CEO stepped down in May, and the inventory is down 25% this yr. The board may ultimately suggest a sale of the corporate.
4. Whiskey woes: Jack Daniel’s proprietor Brown-Forman ( studies earnings on Wednesday. The corporate has stated it )could be hurt by the trade war and retaliatory tariffs from the EU on bourbon and different alcoholic drinks.
5. Coming this week:
Monday — iHeartMedia ( earnings )
Tuesday — Greatest Purchase (, )H&R Block (, )Field ( and )Tiffany ( earnings; US dwelling costs for June )
Wednesday — Salesforce ( and )Brown-Forman ( earnings; US 2Q GDP (second revision) )
Thursday — Abercrombie and Fitch (, )Campbell Soup (, )Lululemon ( and )Greenback Tree ( earnings )
Friday — Eurozone unemployment for July
CNNMoney (New York) First revealed August 26, 2018: 8:17 AM ET