This week started on another low note, as US equities tumbled on weakness in energy and tech. On Tuesday, the S&P 500 temporarily slid 10% below its record September close, while the Nasdaq fell to nearly 14% below its August high. In an equity market that has skated by whimsically on the back of relaxed monetary policy and historically low interest rates for nearly 10 years, trouble has not oft been on the mind of the fully-invested, US-concentrated, passively-exposed, large-cap investor. It seems as if we might have reached a breaking point.
This week, we nearly attempted the delicate dance of running two chartbooks concurrently – one from our partners at Gavekal, and the other from the desk of Evergreen’s Chief Investment Officer, David Hay. However, after stepping back and examining the importance and timeliness of both presentation, and the challenges of weaving together different mediums and messages. we thought it prudent to separate the two and deliver them in back-to-back weeks rather than side-by-side in the same week.
Most coverage of the mounting US-China strategic tensions has focused on tariff threats. Equally significant are moves by the US to choke off Chinese investments in the US technology sector. These moves are part of a strategy to ensure that China can’t catch up to the US in critical technology fields by buying, or buying into, cutting-edge American firms.
Towards the tail-end of July, the Commerce Department reported that Gross Domestic Product (also known as GDP), or the total value of goods and services produced in the US, increased at an annual pace of 4.1% in this year’s second quarter. As expected, President Trump took a victory lap around these numbers, which were the highest GDP growth results since 2014. (However, lost in the fanfare was the fact that the first quarter GDP number was revised down from 2.9% to 2.3%.)
In March, Evergreen outlined our near- and long-term concern for an escalating trade war in The Trump Trade Tirade. Well, ladies and gentlemen, it seems as if the worst
has come is coming to fruition.