See our recap of August’s key statistics and market commentary below.
The GDP estimate for the second quarter was revised upward from 2.6 to 3 percent during August, which marks the quickest pace of growth in more than two years.
The Conference Board’s Consumer Confidence Index rose to 122.9 in August, beating estimates of 120.3. The higher than expected reading puts consumer confidence at its second best level of this year.
The S&P 500 has now finished 10 straight months with a positive return. This ties the all-time record set during the streak that ended in September 1995.
Despite being one of the more volatile months in what has been a calm year, the S&P 500 Total Return continued to show its resilience as it eked out a positive monthly return during August, finishing 0.31 percent higher than it started the month. Not all areas of the U.S. markets saw gains, however, as the S&P SmallCap 600 index lost 2.57 percent. Most emerging markets continued to push higher, with the MSCI EM Index finishing the month positive by 2.23 percent and extending its year-to-date gains to 28.29 percent. Bond yields fell, which resulted in bond prices appreciating. The 10-year Treasury bond closed the month yielding 2.12 percent after starting the month yielding 2.30 percent.
During the last week of August, a Category 4 Hurricane slammed into Texas, bringing over 50 inches of rain to the Houston and Galveston areas in a relatively short period of time. To put this into perspective, Richmond, VA receives about 44 inches of rain per year! The storm is expected to have an impact on the nation’s economic growth; early predictions suggest it could drag down GDP by three-quarters of a percent. Houston is the nation’s fourth largest city by population and is home to 23 Fortune 500 companies, second only to New York City. The Houston region has a large oil and gas presence, and as a result, oil prices are expected to rise, as many production facilities had to temporarily shut down.
While the focus at home was on the ongoing impact of the hurricane, North Korea continued to cause concern from abroad. North Korea fired a missile over Japan that resulted in emergency sirens and warnings being broadcast in northern Japanese towns – a moment that appeared to rattle many residents. Luckily, the missile landed harmlessly in the ocean, but nonetheless, the brazen action did get global attention and provoked United Nation meetings.
On Aug.30, President Trump kicked off the administrations push for tax reform. The markets remain hopeful that some type of reform will take place, but the seven-month-old administration has not demonstrated that it’s capable of shepherding big pieces of legislation to the president’s desk. Tax reform is complicated, both politically and mathematically, and President Trump will need to engross himself in the details of any legislation more than he did in the recent health care push if there’s any hope of a bill passing.
The Federal Reserve held their annual meeting in Jackson Hole which is closely watched by financial markets and had been the platform for monetary policy direction in the past. This year’s meeting was low key, and Fed Chair Yellen’s speech offered no forecast of future monetary policy direction.
As we look forward to September, investors have cause to feel optimistic about the economic picture in the U.S. and abroad. That said, there are an increasing number of potential flashpoints that could inject volatility into the market during the remainder of the year. The competing factions among the GOP in Congress and Trump’s administration will need to find common ground to deal with a number of routine issues in September, let alone legislative accomplishments like tax reform. The federal government is facing a September 30 deadline to pass a budget that will continue to fund the government. Trump has stipulated that any budget resolution will need to contain funding provisions for his border wall, which is not a popular idea in Congress. There also seems to be an impending stalemate leading up to the deadline for raising the debt ceiling. It’s unclear what impact, if any, these two issues will have on investment markets. Markets were positive for the 16-day shutdown that occurred during 2013.
We continue to believe the U.S. and global economic picture is positive. With that said, we expect to see continued higher levels of volatility in the short-term but the potential for a strong fourth quarter.