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The Numbers Are (almost) In…

At market close (3PM) today, the winners of Rapunzl’s October Student Competition will be decided! Be sure to check the leaderboard to see if you came out on top.

We want to congratulate all participants on riding out a roller coaster of a month for the markets, and remind you to join this month’s November Student Competition, which is currently getting underway.

So be sure to navigate to the Competitions page and make sure you’re entered!

Earnings Szn

The market bounced back from a red October following several strong earnings reports as the S&P (S&P) has already gained 2.5% this week following its worst month in 7 years.

Market leaders like Facebook (FB) and Starbucks (SBUX) climbed 6% and 8% respectively after beating earnings, despite both companies experiencing a difficult past month.

DowDuPont (DWDP) gained 8% following its earnings beat, its greatest move since 2015. Apple (AAPL), however, fell victim to lower-than-expected iPhone sales as it fell nearly 7% after hours on Thursday.

Trading Tweets

The market’s recent rally was also helped after Trump announced on Twitter (TWTR) on Thursday that trade discussions with China “are moving along nicely.” However, according to a senior White House official, a comprehensive trade deal with China is still far from reality.

Investors are looking for positive negotiations after worldwide markets, specifically Chinese companies, took massive hits following the tariff exchanges. Chinese President Xi Jinping said that he was open to continuing trade discussions at the G-20 summit, which starts on November 30th.

This will be an interesting event to follow as the short-term future of equities, specifically Chinese-related tech, will be weighing heavily on their conversations.

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We’re Goin’ Dow(n), Dow(n)…

The recent market slump continued into this week as the Dow fell 600 points alone on Wednesday. Lead by massive dips in tech, the S&P dropped nearly 3% while Nasdaq, which lists many of our country’s largest tech companies, fell 4.4%.

Many analysts are warning that the constant red days have pushed stocks into the ‘correction territory; from its previously claimed ‘pullback territory’.

Continuous political disarray, from volatility in oil markets to global trade tensions, has left investors more worried than we’ve seen thus far under Trump’s presidency, as more individuals continue to seek safer assets. The major indices’ annualized returns are now in the red.

Fed Up

President Trump continued to state his displeasure with Fed Chair Jerome Powell on Tuesday. There have been 2 interest rate hikes under Powell, whom Trump chose himself, as the Fed has attempted to utilize contractionary fiscal policy to manage our booming growth and rising inflation.

Trump stated, “I’m very unhappy with the Fed” and specified by saying that Powell “almost looks like he’s happy raising interest rates.”

He even went as far as to claim Obama, who presided over the US’ worst economic crisis since the Great Depression, was lucky to have “zero interest rates.” Trump went on to explain that “it’s too early to tell, but maybe” he regrets appointing Powell.

A Tale of Two Earnings Reports

With earnings szn on the horizon, let’s take a look at a few notable earnings reports this past week and the vastly different results they yielded.

Tesla (TSLA) was expected to post losses of $0.03 per share, however, they shattered expectations, posting brilliant earnings of $2.90 per share. The Model 3 was the best selling US car in terms of revenue, as well as the 5th most bought car in the US. Tesla jumped nearly 12% after hours before settling in at 9% gains for the day on Thursday, and is trading up nearly 21% since Monday!

With so much controversy following their CEO and former chairman of the board, Elon Musk, Tesla’s rollercoaster of a year continues, however, at least it’s heading towards the green for now.

Wall Street darling, Advanced Micro Devices (AMD), was posting over 140% annualized returns just a couple months ago, however, after poor performance after hours on Wednesday and continued losses in the rest of tech, AMD now sits at 50% returns in the last 12 months.

AMD has been hurt by the loss in demand for cryptocurrency, since its chips are one of the leading pieces of tech used in mining crypto. AMD fell over 15% following the poor guidance after hours on Wednesday.

E-commerce giant Amazon (AMZN), which with a market cap of over $800 billion is one of Wall Street’s biggest movers in terms of sheer size, dealt another blow to markets Thursday, as it surprised investors and reported missed earnings.

Missed revenue targets in retail and concerns over a lackluster holiday season put downward pressure on the stock, despite many of Amazon’s technological products, such as its cloud and advertising services, showing strong increases in growth and profitability. Following the news, shares of Amazon dove 9% in after-hours trading Thursday.

Amazon is down nearly 12% on the month, an abrupt turnaround from last month, when Amazon hit record highs and joined Apple to become the world’s second trillion-dollar company in what was a miraculous year of growth. At its peak, Amazon comprised nearly 40% of the S&P’s growth for 2018. If anything, Amazon’s halt is indicative of a reassessment of a highly bullish tech sector.

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Gold versus Stocks

Wow! The S&P 500 lost 4% of its value since October 1st. That’s about $1.3 trillion and might leave you wondering….

How can I make money when the stock market goes down?

That’s where we come in! We spent the week researching companies, trying to find investments that have both growth opportunity and protect your downside risk.

We came up with 4 ideas for trades that could perform really well this month!

Gold (GLD)

This guy bet big on gold before the 2008 financial crisis

A lot of times, when investors are nervous, they tend to sell stocks and invest in rare metals, particularly gold. Instead of buying real gold, however, investors tend to purchase ETFs which track the price of different commodities.

Learn More About ETFS

Gold, probably the most common form of what’s referred to as a “safe haven” asset, is universally regarded as a store of value. Because gold is a physical commodity, it’s value is always reliable and doesn’t depend on market conditions, unlike currencies or stocks. So if the economy takes a turn for the worse, the government raises interest rates, or the dollar loses value, your portfolio may end up taking a hit! Regardless, gold will retain its value, and because it’s value is so reliable, the value of gold generally increases when the stock market goes down or the economy slows.

Costco Wholesale (COST)

If the economy suffers, people will go out to eat less and start to hunt for bargains, which will lead many consumers away from their neighborhood grocery stores and towards Costco, which offers the ability to buy in bulk and save.

This year, sales have increased by nearly 10%, and they’ve retained 90% of their paying members. Next year, the company plans to expand its operations into China.

If Amazon (AMZN) is the disruptor of the modern retail space, Costco has been its silent vanguard, reaping respectable profits and expanding accordingly for years.

Walt Disney (DIS)

The Walt Disney Company owns some of Hollywood’s biggest media entertainment companies.

For many, television and movies offer a low-cost form of entertainment, and while you may be thinking that you don’t watch Disney films, just remember that Disney is massive and owns tons of other companies!

They own the rights to 12 of the top 20 highest-grossing film titles of all time, in addition to owning the rights to ESPN, Marvel, Lucasfilm (the creators of Star Wars). Disney also operates a chain of hugely popular theme parks all around the globe! Not to mention they own most of Hulu and plan to offer their own streaming product for cheaper than Netflix (NFLX) in the near future.

Dollar Tree (DLTR)

Dollar Tree offers products at a discount and will become a more attractive destination for shoppers if the economy struggles and consumers want to minimize their spending.

Over the last 5 years, Dollar Tree has averaged growth of approximately 16%. With over 14,800 stores across North America and a market cap of only $20 billion, there’s a lot of room for this growth to accelerate – particularly if the economy takes a turn for the worse.

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Dow Drops, Tech Wanes

Stocks continued their steep falls this week as the Dow fell below to 25,000 for the first time since this past July. In the 2-day period from Tuesday to Thursday, the Dow totaled losses of over 5%. The NASDAQ, known for its highly tech-centered portfolio, fell more than 2% alone on Tuesday as the riskiness of the tech market continued to show through.

As interest rates continue to rise, and President Trump voices his constant displeasure with them, investors have begun to flee from risky assets like tech stocks, and move their investments into safer havens like gold and oil.

CVS-Aetna Merger Gets Green Light

The Department of Justice passed the approval of the long-awaited CVS (CVS)–Aetna (AET) deal on Wednesday. Valued at $69 billion, the acquisition will add to CVS’s status as the nation’s largest pharmaceutical retailer.

This deal was being watched closely, just like other M&A deals in the past year, due to its sheer size, and uncertainties that the restructuring could bring changes such as reduced competition and consumer choice to the market. However, after this merger, as well as the Time Warner-AT&T (T) deal, it’s clear market-moving acquisitions are still prevalent.

Tesla Back on Target?

Tesla (TSLA) surpassed the 100,000 Model 3 electric mark, the company announced on Friday. This is a quick turnaround from earlier this year when Tesla’s assembly process broke down and Tesla engineers were forced to construct white tents outside to continue working.

This sign of good news comes just a week after Musk settled with the SEC on his securities fraud charge. Rumors of James Murdoch’s soon-to-be appointment to chairman of the board of Tesla leaked soon after Musk was forced to step down. Tesla was trading up 1% on Friday.

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Advanced Micro Devices (AMD)

Advanced Micro Devices (AMD), one of the hottest stocks on Wall Street this year, may finally be due for a readjustment. AMD, which develops semiconductors and computer processors, has seen its value increase over 140% since the beginning of 2018. Much of this growth was fueled by AMD’s development of its high-tech graphics cards, which have played an important role in cryptocurrency mining.

However, the stock has slid nearly 20% over the past couple of weeks from its September high. Many investors, who likely believe the early-year rush to AMD may have left it overvalued, are turning to other major semiconductor market players like Nvidia, whose growth has been more modest.

Tesla (TSLA)

Thanks to its eccentric CEO, Elon Musk, electric carmaker Tesla (TSLA) has seen its stock take a wild ride over the past few weeks. After Musk announced on Twitter that he intended to take the company private for $420/share, the SEC announced it had settled charges with Musk in an agreement where he would step down as chairman of Tesla for at least 3 years but will remain as the company’s CEO. Musk has since continued to spar with the SEC over Twitter.

Tesla stock dipped 13% since last Wednesday and is trading down 2% today. While Musk’s brazen moves may have put the company in regulatory hot water, Macquarie research recently slapped a $430 price target on the stock, citing its likeliness to finally hit production targets, realize profitability, and benefit from clean energy credits. If there’s one thing we can expect out of Tesla, it’s volatility.

Walgreens Boots Alliance (WBA)

The nation’s second largest pharmacy chain reported its Q4 earnings today. Despite trading down 2% today, Walgreens (WBA) stock is up nearly 20% since it last reported earnings. A significant amount of this growth has been attributed to Walgreens’ recent acquisition of Rite-Aid, as it has proven to bolster the chain’s in-store prescription sales, which comprise a hefty portion of overall sales.

While Walgreens has shown strong growth this year, investors that were watching closely for an uptick over last quarter’s declining same-store sales were not relieved. Brick and mortar pharmacy chains like Walgreens have faced difficulty maintaining strong sales in the face of e-commerce giants like Amazon, which an increasing amount of people turn to for household and holiday items.

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Stocks Stay Strong

It was a good week for global equities with modest tailwinds from micro and macro factors.

Q2 earnings reached their crescendo this week, with 174 companies reporting and 60% of the S&P 500’s market cap will have reported 2Q earnings.

On average, US companies are showing earnings growth of over 25%, reflecting strong economic conditions and the positive impact of tax reform.

Facebook Loses Friends

On Wednesday night, Facebook (FB) disappointed high analyst expectations despite posting 42% year-over-year revenue growth in the second quarter. The stock fell sharply in response, down 20%, after they missed revenue expectations and guided for a sharp growth deceleration and long term profit margin compression. Facebook’s tumble, which shaved off about $120 billion in market value, was the biggest one-day loss of any company in stock market history.

However, Amazon (AMZN), which reported Thursday night, calmed investor’s frayed nerves. Amazon exceeded high expectations with strong cloud computing and advertising and raised guidance for the third quarter. Comcast (CMCSA) profits also topped estimates as internet customers grew. Overall earnings have been positive, however, companies are starting to cite the impact of higher materials costs and potential costs of tariff actions.

Housing Market Slows

On the macro front, there was an ongoing focus on tariff and trade concerns, global central bank policy and the economy. The markets reacted positively on US President Trump and European Commission President Juncker’s agreement to make a deal and avoid an escalation of trade tensions.

US Second quarter GDP was released and met consensus expectations of +4.1%, boosted by personal consumption. On a slightly more concerning note, housing data continued to be mixed this week with June data showing a continued slowing in sales. Given that this can be a leading indicator of the economy, it will be watched to see if it is a real trend or just noise in the data.

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Trade Tension Turbulence

Despite notable gains at the beginning of the week, the market experienced severe fluctuations following some foreign policy changes. These changes, which aim to toughen foreign-investment reviews, re-ignited trade tensions and caused U.S. stocks to decline.

Many stocks, such as The Dow Jones Industrial Average (DJI), started out the week with record highs. However, the DJIA fell 0.5%, while the S&P 500 (INX) lost 11.13. Additionally, Nasdaq Composite (NASDAQ) dropped 0.4%. Other strong stocks such as Wells Fargo (WFC), American Express (AXP) and Bank of New York (BK) also reported disappointing losses.

While political tensions may have negatively affected certain sectors, the market shrugged off the turbulence, with most major US indices ending slightly positive and the dollar gaining strength. It is expected that tariffs will be the primary subject of conversation next week when the president of the European Commission visits the White House.

EU Fines Google

Google (GOOG) was fined $5 billion by the EU on Wednesday. The fine was imposed on the grounds of Google’s anti-competitive behaviors. The EU stated that Google broke the rules in requiring phone manufacturers to pre-install Google apps onto Android devices. While this fine is not out of the company’s means, it is consistent with the EU’s trend of desiring more control over tech companies than the U.S

Despite the high fine, Alphabet’s stock dipped less than a percent after the announcement and ended the session trading higher than the previous day’s close. It is likely that even if Google apps are no longer pre-downloaded onto Android phones, their revenue cuts will suffer minimally, as customers are expected to continue using the apps.

Microsoft Cracks the Cloud

Microsoft (MSFT) reached $100 billion in annual revenue for the first time, which serves as a reflection of the company’s changing image. Under CEO Satya Nadella, the 43- year old software company has established itself as a strong provider of cloud computing technology.

While Microsoft shares experienced minimal movement after positive fourth-quarter reports, they rose 3% following finance chief Amy Hood’s expectations for a strong current quarter.

Microsoft’s initiatives in expanding its cloud business have increased the company’s shares by more than 40% in the past year. Additionally, the company’s market cap is about $800 billion, putting it in the same league as internet giants such as Apple (AAPL) and Amazon (AMZN).

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Remember when a Big Mac used to cost 75¢? Or how about when you could buy a can of soda for a nickel? Naturally, price levels increase over time (this is often called inflation), and in order to keep up with their constant rise, our wages have followed. However, many workers are dissatisfied with the pace that their salaries have grown relative to global prices, reinvigorating the debate over what the optimal minimum wage should be.

The conversation over minimum wage, a timeless subject of political discourse, seldom tends to spill over partisan lines, making compromise difficult and generally incremental. The minimum wage directly affects millions of workers and impacts the economy at a very high level, so let’s take a deeper look at the prevailing arguments put forth on each side of the debate so we can inch closer to achieving financial fluency.

So What is it?

Minimum wage is the lowest salary a worker can be legally paid per hour under federal law. States, cities, and individual districts can mandate higher minimum wages than federal law requires, but they cannot force workers to work for less than the federal minimum wage rate.

Today, federal law mandates a minimum wage of at least $7.25 per hour. However, 29 of 50 states have minimum wage rates higher than this. At $12.50 per hour, D.C. leads the pack, followed by Washington, California, and Massachusetts which require a wage rate of $11.50, $11, and $11 respectively.

In order to keep up with rising inflation and living costs, the government periodically decides whether the minimum wage rate should be increased or not. However, the debate over just how much it should be is a fiercely complex one, as both sides believe adopting their policy is best for the labor market and the American economy as a whole. Proponents of a higher minimum wage aim to help lower class citizens pay for the rising cost of living, while opponents argue raising the minimum wage will increase unemployment. Yet the minimum wage affects our economy in a myriad of ways, so what exactly are policymakers to do?

Pros of a Minimum Wage Increase

Keep up with Rising Inflation

The main argument for an increase in the minimum wage is that the current federal rate has not grown proportionally to our country’s inflation. The minimum wage in 1968 was $1.60, which is equivalent to $11.40 in 2018 dollars. This means, when adjusting for inflation, minimum wage workers made 60% more in 1968 than they do today!

Furthermore, people have less buying power today than they did 50 years ago, particularly the lower class, which is comprised of a greater proportion of minimum wage workers who find it difficult to keep up with the rising cost of living.

Reduce Income Inequality

Growing income inequality is the one of the most critical issues facing the United States economy today. In fact, the gap between the rich and poor has grown in nearly every statistical category over the past 30 years. By breaking down the percentages of wealth in the US by income classes, we can take a closer look at this immense difference. In 2015, the salary of the top 10% of Americans ($312,536) averaged more than 9 times the other 90% ($34,074). And when compared to the top 0.1% ($6,747,439), the other 90% receive almost 1/200th of their rich counterparts. Clearly, income inequality is a massive and continuously growing problem in the United States. And by increasing the minimum wage, studies have shown that lower class citizens will be helped the most. By increasing the minimum wage, we are directly taking money from large business and putting them into the pockets of our low-income workers, thus shortening the gap between low and high-income workers.

Decrease Dropout Rates

We at Rapunzl value smart investments, and the smartest and least risky investment in the world is investing in our youth’s education. By investing in the minds of our future leaders, we are inherently investing in their future value and ability to be productive members of society. However, high school dropout rates continue to increase as more teenagers are forced to find low-paying jobs to support their families and the increasing cost of living. A 2014 study found that raising the minimum wage in California to $13 an hour would increase the income of 7.5 million families! With wages that directly correlate with rising prices in our country, more teenagers would not have to drop out of school and be forced to support their families. Education is the most important thing for our nation’s youth, and we must take any measure available to ensure that every one of our children can afford to learn.

Spur Economic Growth

While the effect of increasing the minimum wage ripples across many different sectors of the economy, its biggest impact lies in spurring aggregate demand and economic growth. In simple terms, by giving more money to workers, those workers will then spend more money across the economy, thereby boosting sales and adding more jobs. A recent study by the Chicago Fed found that a $1.75 increase in the minimum wage would increase spending by nearly $50 billion in just one year, leading to a subsequent rise in GDP and job growth. Higher wages lead to more spending, which leads to more sales and growth.

While we outlined only several different points in favor of a wage hike, there are many additional effects we haven’t covered. There are clearly many compelling arguments for a raise of the minimum wage, however we must understand both sides of the argument in order to make the most educated decision.

Cons of Minimum Wage Increase

Increase Unemployment

One of the most common and soundest arguments against increasing the minimum wage is that the salary hike will lead to a subsequent increase in unemployment. A recent study by Forbes found that if the minimum wage were to be raised to $15, roughly 6.6 million jobs would be lost. In a similar study, the Congressional Budget Office estimated that if the minimum wage was raised to $10.10, nearly 500,000 jobs would be lost. The reasoning here is that by forcing employers to pay their workers 25-50% more per hour, employers will have to cut costs, and labor is a primary cost for most businesses, meaning less-essential employees may get the boot. While some of the lost revenue can be made up by forcing the customer to pay a little more, transferring costs to the consumer is a last resort for many business owners, making this is a major concern with regard to raising the minimum wage.

In addition to firing some workers in order to pay others the new higher minimum wage, employers might also simply invest in more machines. Robots and AI have no need for a minimum wage, so by spending more now to enlist the help of an automated worker, employers are getting rid of human workers in need of consistent pay for robots that, we are simply assuming here, have no families to feed. This is a growing concern as the complex technology of automated machines continues to advance. By raising the minimum wage, many are concerned it will speed up the process of transitioning from human to exclusively robotic workers.

Although several studies predict that many jobs will be lost by raising the minimum wage, some experts argue that the jobs gained simply through the economic growth of putting more money into the economy will make up for it. A recent study by the Economic Policy Institute predicts that raising the minimum wage to $10.10 would lead to 85,000 new jobs in the next 3 years. Although this does not completely make up for the loss of 500,000 in the Forbes study, it at least helps somewhat. Jobs will clearly become more competitive as salaries increase and supply decreases, therefore, higher-skilled, low wage workers will reap most of the benefit from this increase in pay. But with their advantage comes the disadvantage of younger, less experienced workers who will bear the brunt of increased unemployment.

Discrimination Against Young Workers

Since the demand for jobs will increase with a rise in wages, and the supply of jobs will subsequently decrease, younger, less-skilled workers will be hurt the most from the rise in unemployment. Employers will want to pay the highest qualified employees with their minimal openings rather than the 16 year-old who has never cooked a burger before. We want to empower our youth, not relegate them to the bottom of the socioeconomic ladder, yet by pressuring employers to favor older, more experienced workers, we’re taking away the ability of a certain demographic of youth to be able to earn money to fund their education in a country where the cost of education is increasingly unaffordable and rising fast.

As we can see, there are several arguments to be made against raising the minimum wage. Unemployment is a major concern for hiking the minimum federal rate because ultimately people would rather have a job that pays something as opposed to no job at all.

End of Debate

There are strong arguments to be made for both sides of the debate. An increase in minimum wage would positively impact many different marginalized demographics and spur robust economic growth, while the argument against a raise brings to light valid points regarding increased unemployment and disadvantaging young workers. However, if we have to choose a side, we believe in raising the minimum wage. Over 20% of jobs in America pay less than two-thirds of the median wage, making the US the leader amongst wealthy, developed nations in terms of low-paying jobs. Furthermore, no economy can sustain balanced, long-term growth with severe and accelerating inequality. Although some jobs will be lost following a wage hike, it will overwhelmingly benefit millions of America’s poorest and most disadvantaged workers. And for the younger workers who might be forced to leave their jobs, we continue to advocate for more investment in high-quality education, job training programs, and more affordable higher education.

The minimum wage debate is a controversial one, however, ultimately it’s beneficial for society to continue raising it as prices levels, worker productivity, inequality, and the cost of living continue to rise.

Inflation is real, and as money becomes less valuable, we need more of it to live. So it’s only fair that workers are compensated more for their work, because their work costs more now. By surrounding yourself with a greater understanding of the markets, you can continue to step closer to financial fluency.

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Banks Post Mixed Earnings Reports

PepsiCo’s (PEP) quarterly results were better than expected, indicating the possibility of a gradual recovery in its soda business. PepsiCo’s North American beverage sales fell only 0.9 percent – its smallest drop in four quarters – as the company launched a vigorous marketing campaign to revive soda sales.

Pepsi’s net revenue rose 2.4 percent to hit $16.09 billion, $5.19 billion of which was generated by its beverage business. These figures beat Wall Street’s expectations. In addition, sales at Frito-Lay North America, the company’s biggest business, grew for the entire second quarter, rising 4.3 percent. Much of Pepsi’s growth this quarter can be attributed to their snack foods, rather than their beverages.

While Pepsi’s stronger growth seems to be sustainable, the company still faces rising trucking and commodity costs, which may hamper future growth.

Global Currencies Strengthen

The U.S. dollar rose to a six-month high against the Japanese yen this Tuesday. The yen, which is generally bought during times of uncertainty,(e.g amongst threats of a looming trade war), did not perform as expected, with the dollar rising up 0.5 percent against the Japanese currency.

Risk appetite is significant in the market as investors increase purchases of emerging market currencies. Several Latin American currencies strengthened – it took 2 percent fewer Mexican pesos to purchase a U.S. dollar. The Brazilian real and Russian ruble also rose, indicating that investors are more confident in purchasing riskier assets.

Mid-Year Outlook

At the halfway point of 2018, the U.S. stock market presented a total return of 2.7%, with the S&P up 3.08% and the Nasdaq gaining 11.66%. Stronger economic momentum, rising Fed rates, and persisting geopolitical tensions have definitely influenced this figure during the course of the first half.

Tariffs on $34 billion worth of imports from China were instituted on Friday. This emphasized heightening trade tensions between the two world powers. China responded with its own tariffs on U.S. imports such as soybeans, aircraft and cars. While the most likely outcome predicts peaceful negotiations in favor of a trade war, trade anxieties continue to plague the market and increase volatility.

Aside from trade tensions, other factors that will continue to affect the market were summarized in June’s job reports, which spoke to the strength of the labor market. It is expected that the unemployment rate will move lower as the year continues, which should in turn support wage growth. While this is great for consumers, it may push inflation, prompting yet another rate increase from the Fed.

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Trade War Fear Worries Investors

The stock market took some hits this Monday due to fears of an impending trade war between the U.S. and China. The S&P 500 (S&P) lost 1.4%, but despite spending most of the session at a low, it managed to close a tick above its 50-day moving average.

On the other hand, the Dow Jones (DJI) lost 1.3% and ended up closing below its 200-day moving average for the first time in two years. The Nasdaq (NASDAQ) and Russell (RUT) were both particularly weak, losing 2.1% and 1.7% respectively.

Thankfully, the market as a whole ended up settling significantly higher than the session’s lows. While tariffs no longer seem to be on the table, trade war fears were escalated following Trump’s negative sentiments regarding Chinese investment in U.S. tech companies.

US Threatens Sanctions on Iranian Oil

The U.S. threatened to impose sanctions on countries that continue to import oil from Iran after November 4th.

This new deadline, which is much sooner than most parties expected,  prompted a crude oil rally, which sent energy stocks higher. WTI crude (TPE) futures went up 3.5% to hit $70.45 per barrel, which is their highest in five weeks.

This is no small feat, considering Iranian exports this month accounted for more than 2% of the global demand. Now, there is pressure on Saudi Arabia to help compensate for the loss of Iran’s exports.

Saudi Arabia is one of the few countries with the capacity to increase their pumping in such a short period of time, and while they have already begun to show results, it is unclear as to whether or not they will be able to shoulder this burden in the long term.

Economic Growth Data Shows Slowdown

First quarter growth for the U.S. economy was trimmed to 2% from 2.2%. This downward revision in GDP was somewhat unexpected, especially since tax reforms should have jolted the economy.

While this revision largely reflects lower spending on health care, it may have other implication that could cause investors to feel cautious. Many investors have grown increasingly concerned that the economy could be in the late stage of its cycle, meaning that its current stability may not last long.

Another explanation could simply be that these numbers reflect the uncertainty caused by trade drama, which has been responsible for many of the more volatile market events from May especially.

Nevertheless, all indications for the second quarter point to stronger growth.

The

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