August 5, 2019 BARRON’S M3
The Trader
The S&P 500 Endures Its Worst Week of 2019
By Ben Levisohn
INVESTORS ENTERED THE WEEK HOPING FOR
a repeat of the 1990s. Instead, they might
get a rerun of That ’70s Show.
This past week began with the market
expecting a quarter-point rate cut from the
Federal Reserve and hoping for a sign that
more were to come. Fed Chairman Jerome
Powell delivered on the first, but called the cut a “midcycle
adjustment,” dashing hopes for investors expecting more than
one-and-done and causing stocks to tumble on Wednesday.
Of course, the Fed’s rate cuts back in 1995 were also part
of a “midcycle adjustment” by former Fed Chairman Alan
Greenspan, which helped juice markets for another five
years or so. The market seemed to figure that out as the
Dow Jones Industrial Average rallied more than 300 points
on Thursday before President Donald Trump’s tweets about
new tariffs on China hit.
Trump announced 10% tariffs on the $300 billion of Chi-
nese goods, set to begin in September, that have so far
avoided them, and it ricocheted through the market. The
Dow finished the week down 707.44 points, or 2.6%, at
26,485.01, while the S&P 500 index dropped 3.1% to 2932.05,
and the Nasdaq Composite slumped 3.9% to 8004.07. It was
the worst drop for the latter two since the week ended on
Dec. 21, 2018.
We should have seen this one coming. Trump hadn’t ex-
actly been quiet on the trade front—on Tuesday he tweeted
that “the problem with China, they just don’t come
through”—and it was simply a matter of time before the is-
sue flared up again. Similarly, it’s simply a matter of time
before there’s another “breakthrough” on the trade front for
the president to tout.
That doesn’t make us any less worried. Since January
2018, market peaks have coincided with tariff news, notes
Deutsche Bank strategist Alan Ruskin. The first tariffs, for
instance, were put in place toward the end of that month,
precipitating a 10% decline in the S&P 500 after a rip-roar-
ing start to the year.
The S&P recovered but peaked again in September 2018,
when Trump placed 10% tariffs on an additional $200 billion
in goods, ultimately resulting in a decline of almost 20%. Even
the index’s 6.6% drop in May of this year was preceded by
Trump raising tariffs on some Chinese goods to 25%.
This past week’s drop could be just the first of many.
“Tariff-related risk-off events tend to be multiweek and usu-
ally have considerable run in them,” Ruskin writes.
The question is how much of a run. A 6.4% pullback to
2745 in the S&P 500 would be “normal,” says Macro Risk
It’ssimplyamatterof
timebeforethere’s
anothertrade
“breakthrough”for
thepresidenttotout.
22200
23250
24300
25350
26400
A S O N D J F M A M JJDow Jones Industrials CLOSE 26485.01
PERCENTAGE CHANGE: 52-Wk +4.02 YTD+13.54 Wkly –2.60
2375
2550
2725
2900
A S O N D J F M A M JJS&P 500 CLOSE 2932.05
PERCENTAGE CHANGE: 52-Wk +3.23 YTD+16.96 Wkly–3.10
6225
6775
7325
7875
A S O N D J F M A M JJNasdaq Composite CLOSE 8004.07
PERCENTAGE CHANGE: 52-Wk +2.46 YTD+20.63 Wkly–3.92
570
630
690
750
A S O N D J F M A M JJBarron’s 400 CLOSE 672.80
PERCENTAGE CHANGE: 52-Wk –11.48 YTD +10.35 Wkly –3.91
Source: Barron’s Statistics