Last week’s news was dominated by politics, and the market turned in an unsteady performance. Stocks rebounded on Monday as North Korean fears eased but then tanked on Thursday due to earnings weakness and more terrorism abroad. The announced departure of White House Chief Strategist Steve Bannon came after the close of trading for the week on Friday.
Stocks ended last week lower even though the S&P 500 recorded its biggest one-day gain in nearly four months on Monday because the gains were all given back on Thursday, falling the most in three months. For its part, the Dow’s 274-point drop on Thursday put an end to 63 straight trading sessions without a swing of 1 percent in either direction, the longest such streak since 1995, according to The Wall Street Journal. Falling oil prices led energy stocks to suffer the worst declines during the week. It is safe to say that, at least for now, volatility is back.
Waning tensions with North Korea (or at least a sense that tensions were waning) provided much of the basis for the stock market’s strong start to the week, as equity gains corresponded with a sell-off in safe haven assets, such as U.S. Treasury paper, the Japanese yen, and gold. Statements by President Trump and Chinese leader Xi Jinping’s reiterating their desire to “de-nuclearize” the Korean Peninsula were crucial in this regard. Trading volumes were especially light, however, as is typical during the August vacation season.
The political backdrop appeared to darken as the week progressed, however. The controversy surrounding President Trump’s response to the recent violence in Charlottesville, Virginia, appeared to be weighing on sentiment, especially after the disbanding of two CEO advisory councils following the resignations of several members amidst conflicting reports as to whether the president or the CEOs instigated the disbanding. These worries seemed to boil over Thursday morning, when rumors surfaced that Gary Cohn, the president’s chief economic advisor, was also considering stepping down. The White House quickly denied the reports, but the market’s losses accelerated on Thursday afternoon, with news of the terrorist attack in Barcelona, Spain, further weighing on sentiment.
On the earnings front, retailers had a lousy week, despite some signs of stabilization from Target and Walmart. In technology, shares of Cisco fell over 4 percent Thursday after the firm announced results suggesting weakness across its legacy hardware portfolio.
U.S. Treasuries were mostly flat for the week. Yields inched up early in the week on hawkish statements by New York Federal Reserve President William Dudley, a close ally of Fed Chair Janet Yellen. Minutes from July’s FMOC meeting reinforced expectations for an announcement of the beginning of balance sheet unwinding at the Fed’s September 19-20 meeting, but concerns about stubbornly low inflation were also highlighted. Stronger-than-expected retail sales figures also pushed yields a bit higher. Fears that President Trump’s political controversies would derail his administration’s pro-growth policies pushed yields lower on Thursday, however. The yield on the benchmark 10-year U.S. Treasury note touched its lowest level in several weeks.
European equities logged three consecutive days of gains before trading well into the red the remaining two days of the week. Banks and industrials began the week strong as investor appetite for risk recovered from the previous week’s losses. The continued strengthening of the U.S. dollar, which makes products from European companies less expensive for U.S. purchasers, supported European gains.
As the week closed, a stark reversal in stock gains reflected geopolitical volatility and tentative trading sentiment over growing doubts that the U.S. might not raise interest rates again this year. Banks in the pan-European Stoxx 600 dropped nearly 2 percent on Thursday, the biggest one-day drop since May. Many large European banks are particularly sensitive to U.S. economic news because they have major operations in the U.S. Moreover, European stocks traded lower after the release of the minutes from last month’s European Central Bank meeting revealed concern about weak underlying inflation and the continued rise of the euro.
Spanish stocks fell following a terrorist attack in a tourist-heavy section of Barcelona that killed at least 13 people and injured more than 100 and another attack in Cambrils, a town southwest of Barcelona. In Spain’s IBEX 35 index, airlines, hotels, and other tourism-related stocks bore the brunt of losses. These losses filtered out into the wider European markets too.
The broad Japanese stock market declined for the week. After strengthening versus the dollar for five consecutive weeks, the yen was virtually unchanged versus the buck for the week. Elsewhere in Asia, a batch of indicators for July showed that China’s growth slowed from the previous month, suggesting that the economy has entered a broad slowdown after a surprisingly strong first half of 2017. However, Chinese stocks were mostly a bit higher last week.