Market Insights: US-China Trade & Fed Policy Updates

This week saw markets focus in on two important developments that have been a common thread in the second quarter: The US/China trade war and the Federal Reserve’s potential pivot towards accommodative monetary policy.

On the trade war front, market participants are watching closely as talks between President Trump and China’s President Xi Jinping are set to take place on Saturday as they attend the G20 summit in Osaka, Japan. A deal between the two nations this weekend could help ease concerns around the health of the global economy and make it easier for companies to conduct business overseas.

Last week, comments out of the Fed pointed to an increased probability of a July cut in rates, leading some to wonder whether the Federal Reserve would bend to the political pressure being applied by President Trump, or if they really did see significant slowing in the economy. This week, Fed Chairman Jerome Powell addressed some of that concern by assuring that the Fed is “insulated from short-term political pressures.”

These two factors (trade and monetary policy) are closely intertwined. On one hand, a deal between the US and China would be viewed as a positive development for global economic growth and could be rewarded by market participants. On the other hand, a trade deal could improve the Fed’s perceived global risk picture and decrease the likelihood of a rate cut, which could potentially upset markets. In the end, what the net effect on the markets will be remains to be seen.

Weekly Returns

S&P 500: 2,942 (-0.3%)
FTSE All-World ex-US (VEU): (+0.4%)
US 10 Year Treasury Yield: 2.01% (-0.04)
Gold: $1,410 (+0.8%)
EUR/USD: $1.137 (0.0%)

Major Events

• Monday – Corporate earnings expectations continue to decline as multinational companies grapple with tariffs.
• Tuesday – Federal Reserve Chairman Jerome Powell speaks at an event in New York, assuring that the Fed is “insulated from short-term political pressures.”
• Wednesday – Treasury Secretary Steven Mnuchin signals in an interview that the US and China are getting close to a deal. He says “we were about 90% of the way there and I think there’s a path to complete this.” US stocks ended the day mixed as investors await results from upcoming trade talks.
• Thursday – Three biotech companies BridgeBio Pharma Inc., Adaptive Biotechnologies Corp. and Morphic Holding Inc. all had hot starts in their initial public offerings on Thursday, gaining over 62%, 101%, and 20% respectively.
• Friday – US stocks wrap up the second quarter on a positive note with the S&P 500 gaining 0.58% for the day and 3.8% for the quarter.

Thinking About Your Emergency Fund?

One crucial component of a strong financial plan, and one that we discuss frequently with our clients, is an adequately funded emergency fund. How much you should have saved in an emergency fund will vary and depend largely on your unique situation, but as a general rule of thumb individuals should have enough cash to cover three to six months of expenses based on your average monthly spending. Where you fall in that range can be affected by factors such as how secure your current employment situation is, how confident you are you could quickly find replacement work if necessary, health concerns, family that depends on your income, etc.

Having an underfunded emergency reserve could deal a devastating blow to a financial plan in the case of an unexpected expense or the sustained loss of an income stream. On the flip side of the coin, an over funded emergency fund can also act as an unnecessary drag on progress towards your long-term financial goals. Determining the right number for you should be discussed with your advisor.

Once you’ve determined an amount for your emergency fund you’ll need to figure out where to hold those assets. We recommend folks keep their emergency assets safe in a cash account with a competitive yield. This way, you’ll have peace of mind that you have a safety net when life throws you a curveball. It may be tempting to invest those dollars in the markets and try to beat yields on a cash account, but subjecting your emergency assets to unpredictable volatility can result in an underfunded emergency fund right when you need it most. You may end up being forced to sell in a falling market in order to raise the cash you need for expenses. When it comes to your emergency fund, you should not compromise on safety.

We recently introduced Personal Capital Cash™*, offering a new high-yield account starting at 2.30% APY**. And it’s not just for our current users or wealth management clients, it’s for everyone.

Personal Capital Cash is very different than other accounts you’re used to — with an APY that is 23x the national rate***, up to an aggregate of $1.25 million in FDIC insurance****, no account minimums, no fees, and flexible deposits and transfers, it does more than just stash your cash.