Investment Commentary – September 5, 2018

Year to Date Market Indices as of Market Close September 5, 2018
Dow 25,954 (4.97%)
S&P 2,883 (7.85%)
NASDAQ 7,985 (15.69%)
Gold $1,202 (-9.54%)
OIL $69 (17.13%)
Barclay Bond Aggregate (-1.23%)
Fed Funds Rate 2.0% (last increase was 6/13/18)

Why stock investors shouldn’t fear the historically weak month of September this year

The month is typically positive in years when the S&P 500 is positive through August.

U.S. stock-market investors are staring down what has historically been the worst month of the year for Wall Street, but the strength equities have shown so far in 2018 suggests such weakness may not be repeated this year.

According to Bespoke Investment Group, the seasonal weakness of the month of September is largely an issue of momentum. While the month averages negative returns overall, September tends to be positive in years where the market has been positive going into the month.

“While September has indeed been the worst month of the year for stocks, the negativity usually comes during years when the market is already struggling entering the month. That’s simply not the setup in place this year,” the firm wrote in a report.

So far this year, the S&P SPX, -0.30% is up 8.5%, while the Dow Jones Industrial Average DJIA, +0.10% is up 5% and the Nasdaq Composite Index COMP, -1.05% is up nearly 17.5%.

Not only is the positive year-to-date move enough to suggest the uptrend could continue over September, but the magnitude of the gain through the end of August also augurs well for trading over the remainder of the year.

JP Morgan thought of the week

After a challenging first half of the year for the Eurozone, recent survey data suggest a stabilization in the growth outlook for the region. The Ifo Business Climate Index for Germany is a survey measure of businesses’ assessments of the current and future economic environment. Despite a moderation in the business climate from elevated levels since the start of the year, the current environment for businesses remains supportive of activity. Encouragingly, expectations for the next six months improved markedly in the August survey, as trade concerns were somewhat eased by the announced truce between the European Union and the US administration over further tariffs. If the economic backdrop continues to stabilize, this should lead to solid earnings growth for European companies over the rest of the year. Germany If business climate picked up in August.

Around the web:

Trade tensions: A recently recurring theme played out again as investors responded to developments in disputes between the United States and trading partners Canada, Mexico, China, and Europe. Stocks moved higher despite a lack of resolution on several trade issues.

Market milestones: Major U.S. equity indexes rose modestly, with the NASDAQ outperforming the S&P 500 and the Dow by a wide margin for the second week in a row. The S&P 500 topped 2,900 for the first time, the NASDAQ breached 8,000, and the Dow eclipsed 26,000; however, the Dow was unable to stay above that level by Friday’s close.

Speedy NASDAQ: The NASDAQ’s climb above 8,000 points on Monday marked a rapid rise for an index that’s more heavily weighted in technology stocks than the Dow and the S&P 500. After crossing 7,000 in January, it took the NASDAQ less than eight months to breach 8,000. The last time the index crossed a pair of 1,000-point thresholds in a single year was in 1999.

4%+ growth: The U.S. economy’s strong performance in this year’s second quarter was confirmed on Wednesday, when the government reported GDP grew at an annual rate of 4.2%. That’s the fastest pace in nearly four years and is slightly above the government’s initial estimate of 4.1%.

Other Notable Indices (YTD)
Russell 2000 (small caps) 13.78
EAFE International 4.38
Emerging Markets -2.89
Shiller Annuity Index 13.14

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.

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