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Capital Markets Recap - August 2018

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Summary

  • U.S. equities traded higher in August as the current bull market became the longest on record during the month. Strong improvement in the health of U.S. manufacturing led to the highest consumer confidence level since October 2000.  The unemployment rate declined to 3.9% (decreased by 0.1% in July) and wages continued to rise (up 2.7% for the last 12 months).  The second quarter estimate of annualized gross domestic product was revised up to 4.2%, the highest number in four years.
  • International and emerging market equities returns both pulled back during the month of August. Manufacturing growth in the Eurozone dampened and consumer confidence diminished partially due to U.S. tariff and trade war concerns.  For the first time since April 2016, new export orders declined in the UK, signaling a slowdown in manufacturing and stagnation in job creation in the sector.  Emerging markets saw a sharp decline for the month and year-to-date as South Africa entered a recession and Indonesia’s falling currency was added to the numerous other plunging currencies in the sector.  In China, export sales have declined for the fifth month in a row, inflationary pressure has increased, and the employment situation has deteriorated.
  • Fixed income investments ended the month higher for both investment grade bonds and high yield bonds, but they were flat for municipal bonds. The 10-year Treasury yield fell from 3.0% to 2.9% as investors sought safety and in anticipation of a September rate hike (yields fall as bond prices rise).

 

U.S. Equities

  • Broad U.S. stocks continued to rally in August (up 3.5%) and on a year-to-date basis (up 10.4%).
  • Size – Small-cap stocks (up 4.3%) outperformed both large-cap (up 3.5%) and mid-cap (up 3.1%) equities during the month, and small-caps continue to lead on a year-to-date basis (up 14.3% vs. large caps up 10.1%).
  • Style – Growth stocks (up 5.5%) outpaced value stocks (up 1.6%) in August and continue to significantly outperform on a one-year basis (up 27.5% versus 13.0%, respectively).

S&P 500 Sector Returns for August 2018:

Looking Ahead

  • This September marks the 10th anniversary of the financial crisis, as the longest bull market in history marches on. We encourage long-term investors to have a globally diversified portfolio.  During the current economic environment, it is critical to maintain the discipline to rebalance regularly.
Sources: Morningstar, Inc., Barclays Capital, Russell and MSCI, U.S. Bureau of Labor Statistics, The Conference Board, IHS Markit, The Federal Reserve (central bank of United States), The Bureau of Economic Analysis (U.S. Department of Commerce) & U.S. Department of Treasury

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