With the special counsel’s findings that President Donald Trump was not colluding with Russia, the Dow Jones Industrial Average kicked a little gain, Monday. The gains, however, were capped because of the worries that linger across the global economy.
The Dow with 30-stock hit 14.51 points which is higher compared to 25,516.83, outperforming Boeing. The S&P 500 stepped down a little with 0.1 percent to 2,798.36, pulled down by the tech and financial sectors. The index finished under 2,800 which is its first time since March 12. Nasdaq Composite also declined 0.1 percent to 7,637.54.
What Caused the Economic Fear
For the first time in more than a decade, the yield curve has had inverted on Friday, which fueled the fear across the global economic perspective that remained through Monday. On Friday, the Treasury bill for three months yields more than its 10-year counterpart which inverted the yield curve. It is a sign of an upcoming recession, according to the investors. The busted economic view from the Federal Reserve, along with the upsetting economic data from Europe on Friday, contributed to those concerns. The yield curve upturned again on Monday that as the basis 10-year yield reached its lowest level after December 2017.
Bruce Bittles, the chief investment strategist at Baird, says, “Economies in Europe and China continue to deteriorate causing uneasiness that the problems overseas could affect the U. S. markets.” He also said that there are clues that the economy is not as powerful as last year, citing the downturn in capital spending from the previous two quarters of 2018.
Attorney General William Barr’s comments have absorbed by the investors, caused the equity to jump between losses and gains most of Monday. Barr said that the investigation made by special counsel Robert Mueller did not prove that Russia did not help on Trump’s 2016 campaign.
Barr’s letter says, “the Special Counsel’s investigation did not find that the Trump campaign or anyone associated with it conspired or coordinated with Russia in its efforts to influence the 2016 U.S. presidential election.”
Also, the White House declared that results of the investigation are “total and complete exoneration of the president of the United States.”
The investigation is keeping the investors worried as it could have blocked Trump’s attempts to cut taxes further and to ease rulings on corporations even more. The news put Wall Street at ease, and it can also lead the administration to concentrate on more critical issues for the market, like working on a deal with China or working on planning an infrastructure with the Democrats.
Jeff Kilburg, CEO of KKM Financial, says, “This cloud has now dissipated and this should allow markets to breathe a sigh of relief.” “This could be a real positive for the market if it allows Trump to focus on getting the Chinese trade deal concluded,” he added.
The investigation harassed the Trump administration for almost two years. Some of Trump’s operatives, have been indicted and arrested because of it. Paul Manafort, Trump’s ex-campaign manager, was arrested as well and received a 47-month sentence in jail due to fraud early this month.
Investors around the world feared that the investigation might lead to Trump’s impeachment. Wall Street, however, can stop worrying and track the current U.S.-China trade talks.
The deal between the U.S. and China is expected to happen in April. There is optimism around the negotiations this year that would help increase the stocks in a striking distance of their highest record last year. Sarah Huckabee Sanders, White House press secretary, said that the U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin went to Beijing for more talks. The investors were plagued with trade worries for almost the whole of last year, as they fear that the extended trade war with the largest economies in the world could hinder the profits of the corporate.
The S&P 500 had increased more than 30 percent since 2016 when Trump was elected. The corporate tax cut that was signed by Trump in 2017 agitated this increase.
John Rutledge, chief investment officer at Safanad, says “Trump will remain in the White House until the 2020 elections, which means that the Trump tax rates will remain in until at least 2021.” “The positive effect on the market will be obscured, however, by the recent ugly economic news that made the Fed cave and inverted the yield curve. All in all, I think people will be buying defensive and income stocks,” Rutledge added.