Economic Update 8-27-2018

• Economic data for the week consisted of continued strong showings for jobless claims, and mixed results for durable goods, while housing data was weak in terms of new and existing home sales.
• Equity markets gained globally, with U.S. stocks reaching new records but still being outpaced by foreign stocks that were helped by a weaker U.S. dollar.  Bonds gained ground domestically with long-term interest rates falling, while foreign debt was also boosted by the dollar’s drop.  Commodities gained as crude oil prices rose back up toward $70/barrel upon Iranian supply concerns.

U.S. stocks rose for the week, on the heels of no negative economic news, and disregarding the political news of the President’s former campaign chair and former personal lawyer separately fighting legal problems involving activities prior to and during the campaign.  The President’s continued comments about hopes that the Fed would keep interest rates low as well as accusations about the Chinese and Europeans keeping their currencies artificially low appeared to be the cause for the dollar falling back by about a percent on the week.

It’s now official, the S&P 500 has now reached another all-time high, and with it, has also achieved the longest bull market run in history on Wednesday—3,453 days, almost 9 ½ years—without a -20% decline.  Since the last market bottom on March 9, 2009 through last Friday, the market has earned a cumulative total return of +418%, which equates to almost +19% on an average annualized basis.  This compares to the roughly +10% annual return over the last century, although the trailing 10-year number through Friday remains interestingly just above +10% as it includes the volatile months just before the March 2009 trough.

From a sector standpoint, energy gained the most ground, on the back of higher oil prices, followed by consumer cyclicals and tech.  Defensive consumer staples and utilities lost the most ground, down over a percent each on the week.  Healthcare has taken over a bit in terms of market leadership over the last few months, surpassing technology.

Foreign stocks benefited from a sharp fall in the dollar during the week, which boosted both Europe and the emerging markets groups by several percent, while Japan lost ground as the yen weakened.  Chinese stocks gained, despite continued tariff threats and mixed messages about negotiations, while Brazilian stocks lagged sharply as support strengthened for an imprisoned former President who is largely seen as anti-market.

U.S. bonds gained a bit on the week as the yield curve twisted, with short rates rising while longer rates declined by a few basis points.  Corporate credit performed in line with treasuries; high yield outperformed investment-grade corporate slightly.  Internationally, foreign developed market bonds fared very positively due to the U.S. dollar falling a percent for the week, with developed nations outpacing emerging market debt.

Real estate ended mixed on the week, with U.S. names generally down, with weakness in industrial/office being offset by positive performance in retail and malls.  By contrast, Europe and Asia fared well in the backdrop of downward dollar movements.

Commodities generally fared well to end the week, with help from a weaker dollar.  Both the energy and industrial metals groups gained several percent, as did precious metals.  Agricultural contracts corn, wheat and soybeans all lost significant ground as news of a strong harvest season was digested, boosting supplies.  West Texas crude oil surged by over +5% to a price of just under $69/barrel to end the week as concerns rose over the removal of Iranian supply from global markets due to the re-imposition of U.S. sanctions.  In response, the U.S. Dept. of Energy offered over 10 million barrels from the Strategic Petroleum Reserve in order to help stabilize supply needs and pricing.

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.