Weekly market update
Concerns about Turkey drove volatility in global financial markets last week, but U.S. equity markets rebounded as contagion fears diminished. The Dow and S&P 500 managed to claw their way into positive territory but the NASDAQ took a breather, but only falling 0.23%. And the Dow Jones climbed nearly 400 points Thursday after the Chinese announced a willingness to resume trade talks with the United States. No agenda was set, but the mere prospect of progress injected a shot of optimism in the market.
A key factor driving emerging market concerns is the strong U.S. economy. Robust economic growth and rising interest rates favor U.S. stocks, and the safe haven flows driven by emerging market fears drove the dollar strength.
We received further affirmation that the U.S. economy is on course to post another strong showing this quarter. Retail sales, a key indicator of consumer spending, expanded 0.5% in July, well above expectations. Moreover, despite trade policy uncertainty and ever more acute labor shortages, small business optimism remains at a historical high. Although housing starts in July were somewhat disappointing, the combination of strong permits and rising wages should support a gradual uptick in construction in upcoming months.
There have been a lot of talking heads bringing up the notion of a recession on the horizon, especially with the flattening of the yield curve, but the Leading Economic Index (LEI) hasn’t dropped for an incredible 26 consecutive months.
Tariffs and trade concerns might get the headlines, but the economy is showing few signs of slowing here.
This week, trade talks and FED’s Jackson Hole meeting could create more than the usual late August volatility. We will get more earnings from a number of retailers. Target, Kohl’s, Lowes and TJX are just some set to report.
On the economic front, we will get the latest read on PMI services and manufacturing, new home sales and durable goods. We’ll be closely watching those housing numbers.
So stay tuned and we’ll keep you posted.
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
August 20, 2018
