Investment Commentary – August 22, 2018

Year to Date Market Indices as of Market Close August 22, 2018
Dow 25,822 (4.46%)
S&P 2,862 (7.08%)
NASDAQ 7,866 (13.85%)
Gold $1,204 (-9.37%)
OIL $66 (12.57%)
Barclay Bond Aggregate (-0.92%)
Fed Funds Rate 2.0% (last increase was 6/13/18)

Stocks Mixed, Bonds Advance Amid Political Turmoil: Markets Wrap

U.S. stocks fluctuated, while Treasuries rose as investors assessed the impact on financial markets from the latest legal drama engulfing Donald Trump’s presidency. The dollar declined.
The S&P 500 Index was mixed after touching an all-time high Tuesday. Equities took a knock from Michael Cohen’s guilty plea on campaign finance charges, though losses remain muted as the bull market became the longest on record. Target Corp. and Lowes Cos. both rose after reporting earnings.

The greenback extended its longest losing streak in six months to a fifth day, as the euro rallied on data showing the biggest jump in wages in six years. The 10-year Treasury yield dropped ahead of the release of Federal Reserve meeting minutes.

While all eyes focused on the legal drama in Washington, U.S. stocks remained near records amid double-digit corporate profit growth. At the same time, benchmark Treasury yields have held below 3 percent even as the Fed remains on track to raise rates amid a strengthening economy. Add to the mix trade wars and turmoil in emerging markets.

Some clarity could come from a meeting of central bankers on Friday in Jackson Hole, Wyoming.

This bull market may soon silence all the naysayers

In recent years, the upcoming one-month period has been among the most bullish for stocks

These are exciting times for the U.S. stock market. The S&P 500 set a new record Tuesday and the bull market is about to claim the crown as the longest in history Wednesday. But things could get even more awesome for the market as it heads into what may be shaping up to be a very bullish season.

Over the past decade, the one-month period from Tuesday’s close has been among the strongest for equities, according to analysts at Bespoke Investment Group.

“We’re entering a period of the calendar year that has been exceptionally bullish for the S&P 500 over the last 10 years. Over the next month, the S&P 500 has posted a median gain of 3.31%, which gets a ‘perfect’ rating when looking at all one-month periods of the year,” said Justin Walters, co-founder of Bespoke, in a report.

The S&P 500’s SPX, -0.11% performance over the next three months is even more impressive, with the large-cap index posting a median gain of 5.9% over the past 10 years. And during this three-month period, all S&P 500 sectors have closed higher, led by technology stocks at 8.7% and energy at 7.46%.

However, some of that seasonal magic may be offset by political uncertainty. Data from MKM Partners show that stocks underperform in the second half of midterm election years, with the market witnessing a pullback of 11% on average.

Still, on the whole, the backdrop for stocks is mostly bullish and the market is well-positioned to extend gains into the end of the year, according to analysts.

Around the Web:

Policy talk: Investors will be closely watching for indications of a possible monetary policy shift when Federal Reserve Chairman Jerome Powell delivers a speech on Friday at an annual Fed symposium in Jackson Hole, Wyoming. On Wednesday, the Fed is set to release minutes from its most recent policy meeting.

Climbing back: Stocks recovered from a bumpy start to the week as the S&P 500 and the Dow both rose around 1%, with the S&P 500 closing less than 1% below its record high set about seven months ago. The NASDAQ didn’t fare as well, posting a modest decline.

Shopping strength: Strong quarterly results from several major U.S. retailers helped provide a positive catalyst for stocks in the home stretch of earnings season. The industry got a further lift on Wednesday, when the government reported retail sales grew faster than expected in July.

Rally time: The Dow surged 396 points on Thursday, posting its biggest daily gain in more than four months. Strong earnings results were cited as a key catalyst, along with positive developments in the recent economic turmoil in Turkey.

Trade talks: News about a modest breakthrough in the trade tussle between the United States and China provided another source of lift for stocks on Thursday. The two countries said they would hold low-level talks later this month, raising hopes of a potential end to the recent imposition of tariffs by both nations.

Other Notable Indices (YTD)

Russell 2000 (small caps) 12.73
EAFE International -2.38
Emerging Markets -5.03
Shiller Annuity Index 11.40

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.