Weekly market update
August is now in the books and it normally has been a challenging month, but August actually turned out quite well. The Dow added 2.1%, the S&P 500 added 3%, the NASDAQ tacked on 5.7% and the Russell 2000 added another 4%. The NASDAQ had its best August in 18 years. The Russell 2000 closed August with its 7th straight positive month—the longest monthly win streak since September 2009.
Oh, but these gains didn’t come without challenges. Think back to the first of the month when geopolitical concerns pushed the Turkish Lira to a record low against the U.S. Dollar and that rattled investors. Turkey had found itself “in the midst of a perfect storm” of worsening financial conditions, shaky investor sentiment, inadequate management of their economy and tariff threats from the U.S.
This only added to the geopolitical concerns that we had on the wall of worry. The trade concerns between the U.S and Mexico, China, Canada and the European Union were already weighing on investor sentiment, but the markets held up. In fact, they pushed the NASDAQ, the S&P 500, the Wilshire 5000 and the Russell 2000 to new all-time highs. Those trade concerns may bring on a lot of headline risks, but investors were resilient—and it could be in part to FOMO (Fear of Missing Out) that had them buying even at new highs.
Turning to the economy, U.S. economic growth was a bit stronger than initially thought in the second quarter, notching its best performance in nearly four years, as businesses boosted spending on software and imports declined to push GDP up to 4.2% for Q2.
The FED’s preferred inflation indicator (Core PCE) has hit the FED’s magic number of +2.0% for the first time since April 2012. This will give the FED more ammunition for continued rate hikes despite the slow-moving train wreck occurring in U.S. housing markets (oh and in the Emerging Markets).
Consumer Confidence pushed higher, the highest since 2000, and consumer sentiment was just as strong.
Across the ponds, European and Asia markets continue to reel from the trade woes and the stronger dollar isn’t helping. Most notably impacted have been the emerging markets—think Turkey, Brazil, Mexico and Argentina. And the bloodshed in those markets and their currencies may just be getting started. The strong U.S Dollar is causing a lot of the troubles, but don’t forget the FED has plans to raise U.S. interest rates two more times this year, and that will push the dollar higher causing even more pain for the emerging markets.
So, hello September! September has historically been a weak month for stocks here and abroad. And this September could be a bit more volatile month as traders return to their desks from vacation. Traders and investors have a lot to focus on— trade wars, tariffs, a FED raising rates, strong dollar and valuations getting a little stretched on stocks. Don’t be surprised to see volatility ratchet up over the coming weeks.
Stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
September 7, 2018
