August Market Commentary

US stocks hit new record highs early in the month before enduring significant bouts of volatility, but rallied to end slightly up. Many events weighed on US stocks throughout the month including, rising tensions with North Korea, the dissolution of the President’s business councils, terrorist attacks and Hurricane Harvey. With virtually all S&P 500 firms reporting, roughly 70% have topped analyst estimates for earnings and revenue. Economic news was generally solid during the month with 209,000 jobs added in July and the unemployment rate falling to 4.3%, a 16 year low, worker productivity increased, personal spending rose at its fastest pace since April retail sales rose more than expected, and second quarter GDP was revised up from 2.6% to 3.0%, the fastest growth rate in over two years. Oil fell 5.9% over the month, but due to the effects of Harvey, US gas prices have reached the highest level in two years. US stocks edged up 0.19% in August and are up 11.20% for the year to date.

Foreign stocks rose over the month on solid corporate earnings and economic numbers. The largest European companies’ second quarter earnings grew 16% over the previous year. Japan’s economy grew by 4% in the second quarter. Unemployment has fallen to an 8 year low of 9.1% in the Eurozone. The pace of growth slowed in China in July as industrial output, retail and housing sales and fixed asset investment all ticked down from June and were lower than forecast. Emerging markets continued to outpace developed markets for the month and year to date. In August, international stocks rose 0.50% making the gain for the year 18.80%.

Bonds jumped in August as interest rates fell on weak inflation data. Minutes form the Fed’s July meeting showed that concerns over weak inflation is bringing reservations about the timing of the next interest rate increase. They originally expected to make another interest rate increase later this year. However, they were in agreement about beginning to unwind their balance sheet perhaps as soon as September. In speeches at the Jackson Hole Economic Symposium Fed Chair Janet Yellen and ECB president Draghi offered few clues on the future moves by their central banks. The 10 year Treasury yield fell over the month ending at 2.12%, its lowest level since November. In August, generally longer term bonds topped shorter terms bonds and Treasury bonds were the top performing sector. The broad bond market jumped 0.90% in August, raising the year to date return to 3.64%.