Economic Update 9-17-2018

• Economic news for the month included mediocre retail sales numbers, several inflation results that came in a bit lower than expected and continued strong labor market data.
• Equity markets gained globally, as sentiment about trade improved somewhat.  Bonds were mixed with interest rates moving higher, as credit outperformed governments.  Commodities gained slightly, as oil prices moved higher.

U.S. stocks gained ground last week as hope swung back and forth again about a potential U.S.-China trade deal before additional sanctions were set to be implemented, led by planned U.S. treasury negotiations.  However, rhetoric continues to be fluid and changing almost by the day.  From a sector standpoint, energy and industrials led the way, followed by technology, due to optimism about the annual Apple iPhone release—with gains for all three sectors approaching +2%.  Defensive sectors utilities and consumer staples lagged with minimal, but still positive, gains.

Foreign stocks gained with stronger hopes for trade easing between the U.S. and China, a weaker dollar, as well as the ECB reiterating their interest rate policy path.  This includes a plan to discontinue asset purchases in December, inflation levels permitting, and keeping rates at extraordinary low levels through the summer of 2019 before considering a normalization program.  Japan fared well on the week with GDP for Q2 revised upward by a percent to 3.0%, aside from the trade tension-easing sentiment that buoyed all global equities.

Emerging markets fared best with a recovery in Russia, Mexico and Turkey—the latter driven by central bank moves to hike the short-term interest rate in order to boost the lagging currency.  Chinese stocks continued to lag, with declines over the last three months approaching -20% bear market territory.  Economic activity there has continued to show fairly strong growth, albeit decelerating in recent months, coupled with and overwhelmed by the negative sentiment of the ongoing trade dispute with the U.S.—any impacts from which are assumed to begin in later 2018 or even 2019.

U.S. government bond prices fell back a bit for the week, with the 10-year treasury again pushing towards, but not quite ending the week at 3%—despite inflation being contained relative to recent months on a year-over-year basis.  High yield and other corporates bucked the trend with gains, due to tighter credit spreads.  Foreign bonds fared well with a weaker dollar and a bounceback in several emerging markets.

Real estate fell back as interest rates rose in the U.S.; however, international real estate fared better with positive returns with help from a weaker dollar.

Commodity indexes gained slightly, with help from a weaker dollar.  However, the gains were led by energy space solely, as agriculture and industrial metals lost ground during the week.  The price of crude oil rose almost +2% on the week to reach just under $69/barrel, with Iranian sanction impacts weighing on fears of lower supplies.

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.