Economic Update 8-20-2018

• Economic data for the week was highlighted by stronger data for retail sales and leading economic indicators, mixed regional manufacturing survey results, while sentiment and housing data disappointed.
• U.S. equity markets ticked higher last week, while foreign stocks suffered, and emerging markets faring worst.  Bonds were flattish as interest rates ended the week little changed.  Commodities lost ground, with crude oil prices losing a few dollars per barrel.

U.S. stocks gained on the week overall, as early concerns over possible contagion in Turkey and ongoing Chinese tariff issues were balanced by some alleviation of concerns later in the week.  From a sector standpoint, defensive groups consumer staples, utilities and telecom ended the week with decent gains of generally a few percent, while energy declined over -3% as oil prices fell back again.  The consumer stock group was highlighted by Wal-Mart reporting its strongest sales in a decade, while traditional brick-and-mortar department stores Macy’s and JC Penney have been hit hard with results and/or forward-looking commentary that weren’t up to market expectations.  The Amazon effect is carrying through to every quarterly report in the consumer sector, resulting in far greater scrutiny of long-term operations than merely traditional cyclical factors.

Foreign stocks declined last week in all key regions, despite the minimal impact of the dollar last week.  All areas abroad were brought down by concerns of possible contagion from problems in Turkey, which were focused on exposures housed in certain European banks—notably those in Spain and Italy.  Emerging markets severely underperformed, as concern over Turkey’s problems weighed on sentiment and trade issues pulled down prices for equities in China and Brazil.  However, some capital support for Turkey from global investors (such as Qatar) and discussions of a trade delegation from China to meeting with U.S. treasury officials in a few months improved sentiment a bit.  The back and forth on trade continues.

U.S. bonds were flattish on the week as the treasury yield curve was miraculously identical to the curve from the prior week—only the 1-month treasury ticked up by a little bit.  Investment-grade corporate bonds outearned both treasuries and high yield by a few basis points on the week.  Foreign bonds were mixed with little impact from a pause in the U.S. dollar’s rise last week.   Developed market debt gained minimally, in keeping with U.S. markets, while emerging market local debt continued to lose ground with uncertainty in those markets.  EM dollar-denominated bonds, however, gained in value.

Real estate in the U.S. gained on the week overall, with several sectors faring positively, including health care and residential.  Real estate in Asia and Europe experienced lost ground, but fared better than broader equity markets.

Commodities generally lost ground across the board, as weakness in energy, industrial metals and precious metals outweighed gains in agriculture—the latter impacted by a bounceback in soybean prices.  The price of crude oil declined a few dollars, nearly -4%, on the week to just over $65/barrel, as news of additional U.S. inventory outweighed ongoing broader global trade concerns.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                               

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.