What happened in August?

A strong month for tech stocks and more positive economic data bolstered U.S. equities in August despite continued trade uneasiness. The U.S. and Mexico appeared to have reached a trade agreement that will await approval by both governments. In the meantime, U.S. and Canadian officials have been working feverishly to incorporate Canada into the agreement. On the other front of global trade negotiations, the U.S. appears set to move forward with tariffs on $200 billion of Chinese imports in early September.
 
Amidst the trade uncertainty, the U.S. economy is still rolling with strong data released in August regarding the 2nd quarter. Corporate profits were 16.1% higher than the same period last year and GDP was revised up to a 4.2% annualized growth rate. The S&P 500, Nasdaq Composite and Russell 2000 all touched new highs.
 
Emerging markets have been hit severely by the situation in Turkey where the Turkish lira lost 25% of its value relative to the U.S. dollar in August. Investors worried about currency devaluation in other emerging markets pulled large investments out of these areas and drove the asset class generally lower. Compared to the U.S., less solid economic data abroad left international markets impacted by trade unease in August.

 

August by the numbers:

U.S. Equities | S&P 500: +3.2%     

International Equities | ACWI ex-U.S.: -2.1%

U.S. Bonds | Barclays U.S. Aggregate Bond Index: +0.6%

Global Bonds | JP Morgan Global Aggregate Bond Index: +0.1%

 

Moving into August

The U.S. and China resuming trade discussions is a positive sign for what has become an escalation of trade uncertainty and disputes in 2018. With Chinese retaliatory restrictions on U.S. goods looming, the tone and outcome of these discussions will be important for the international markets in the near-term. Lagging growth abroad is a point of concern with important events such as Brexit decisions and trade discussions on the horizon. Domestically, equities had a good July and the economy remains strong but trade uncertainty still casts a shadow. The Federal Reserve is expected to raise rates in September, which could put pressure on bond issuances with higher borrowing costs resulting in possibly less private-sector investment. We enter August 80% invested in our tactical U.S. strategy and 62% invested in our tactical international strategy.

 

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Negative Indicators

Neutral Indicators

 

Positive Indicators

 

 

Valuation

Both P/E and forward P/E ratios rose very slightly from last month as a result of positive market action along with positive corporate earnings.

Technical

The University of Michigan Consumer Sentiment Survey remained very high in August. The Bull/Bear ratio swung slightly higher in favor of the bulls as the current bull market became arguably the longest on record in August. 

Sentiment

The VIX was unchanged and still sat below 13 at the end of August and the Relative Strength Index rose slightly. The S&P 500 now sits 3%, 5% and 6% above its 50-, 100- and 200-day moving averages respectively.

Macroeconomic

U.S. GDP was revised up to a growth rate of 4.2% in the second quarter. Personal-consumption expenditure rose in the second quarter at a 3.8% annualized rate.