By Amrith Ramkumar
Stocks enter the final week of August coming off one of their rockiest stretches of 2019, the latest example of tariff-induced volatility that has some investors bracing for more fluctuation.
With the S&P 500's 2.6% drop Friday, the broad equity index brought its average daily swing above 1% for a third consecutive week, the longest such streak of the year, according to Dow Jones Market Data. Stocks averaged a daily move of about 0.5% from mid-June to early August.
In another sign of investor anxiety, the Cboe Volatility Index, or VIX, logged a fourth consecutive weekly increase. Wall Street's "fear gauge" measures expected swings in the S&P 500 and tends to move inversely to stocks. Commodities including oil and bond yields have also been volatile, with analysts worried that new tariffs will further weaken the world economy.
Markets had shown signs of stabilizing before China announced new tariffs on U.S. imports Friday and President Trump responded by ordering U.S. companies doing business in China to explore relocating. The latest developments in the monthslong trade dispute between the world's two largest economies stoked fresh fears that an overseas economic slowdown will engulf the U.S. and hurt consumers.
This week, investors will parse figures on July consumer spending and another estimate of second-quarter gross domestic product to gauge whether the U.S. can continue outpacing the rest of the world. Upbeat July retail sales figures and strong earnings from companies including Target Corp. and Lowe's Cos. have offered encouraging signals about the health of the consumer.
Despite recent market swings, some analysts are still hopeful that lower interest rates and an eventual U.S.-China trade compromise will improve the outlook for the world economy. While protectionist trade policies have dented manufacturing activity and limited business investment, some analysts are confident challenges to U.S. consumers won't halt spending and economic growth.
"We don't see them actually showing up in the real economy yet, and for that reason we don't think a recession is imminent," said Nela Richardson, an investment strategist at Edward Jones, adding that she expects stocks to perform better than bonds.
At the same time, some analysts fear that the signals from the bond market and measures of investor confidence could cause more volatility.
Bond prices, which rise as yields fall, have surged with some investors seeking safety in Treasurys recently. The movement toward bonds has pushed longer-term Treasury yields to multiyear lows and caused one closely watched section of the yield curve, the gap between two- and 10-year yields, to invert.
Such inversions in which shorter-term yields eclipse longer-term yields have preceded past recessions, though the timing between inversions and slowdowns has varied and stocks have often rallied for months following such a move. One Friday, the 10-year yield fell below the two-year yield on a closing basis for the first time since 2007.
Prices for commodities vital to construction and manufacturing have dropped in August, with investors expecting demand to weaken alongside economic activity. Copper fell Friday to its lowest level since May 2017, while a 2.1% decline in oil prices brought crude's month-to-date decline to 7.5%.
Those moves have prompted traders to increase wagers on lower interest rates. Federal-funds futures show nearly 90% of investors expect the Federal Reserve to cut rates at least two more times this year, CME Group data show. That is up from about 57% a month ago.
Minutes from the central bank's July meeting published last week showed officials expected trade uncertainty to continue, though they were reluctant to say how future adjustments to rate policy would unfold. Fed Chairman Jerome Powell said early Friday that the central bank was prepared to provide more stimulus if the global-growth slowdown spreads to the U.S.
The bets on lower interest rates have pushed some investors toward shares of companies with more-stable businesses and larger dividends. The S&P 500 utilities, real-estate and consumer-staples sectors -- areas typically viewed as safer -- are the only groups in the index that have risen this month.
Other destinations for safety such as gold outpaced the broader market on Friday, with the haven metal rising almost 2% to a six-year high.
Write to Amrith Ramkumar at firstname.lastname@example.org