News of the yield curve inversion vanished as quickly as it appeared with the two-year yield falling more than the ten-year to reverse the inversion. Equity markets stabilized after the large drop on Wednesday and rallied back some of the losses. It was still a negative week, but it has not morphed into a sustained downturn pushing into bear territory. Time will tell, but Friday’s rally was an encouraging sign. US Equities (S&P 500 Index) have enjoyed an unconventional bull run since 2009 with historically low equity volatility and few interruptions to its upward trend. Until last year, large downward swings commonly experienced with equity investing were uncharacteristically infrequent. Below are the peak-to-trough drops since the beginning of 2018 (based on daily intraday prices for the S&P 500 Index, not including dividends):
1/26/18 – 2/9/18
3/13/18 – 4/2/18
10/3/18 – 12/26/18
5/1/19 – 6/3/19
7/26/19 – 8/5/19
8/13/19 – 8/15/19
Source: Bloomberg, LLP
Investors should focus on the long-term picture. Although equity markets have experienced periods of significant short-term losses, those who remained invested through the turbulence were rewarded with attractive long-term returns. Despite recent drawdowns, investors were still rewarded for taking equity risk as the S&P 500 Index has an annualized three-year return of 11.95%. Volatility is expected to continue given unresolved geo-political events (i.e. US-China, Brexit) coupled with mixed economic signals.
Both CPI and retail sales were very strong. Production and manufacturing continued to show weakness. Consumer sentiment was weaker-than-expected, likely the result of weakening global growth signals and pending trade disputes creating economic uncertainty. Trump made a vague comment on US-China talks, saying “We are doing very well with China, and talking!” which followed an earlier plea to meet with President Xi personally regarding the protests in Hong Kong. Regardless, it is likely that we are still far off from a resolution. Negotiators have agreed to meet in about a week.
This week will be very light on economic indicator releases. The Fed will release its minutes from last meeting and Fed Chair Powell will speak at Jackson Hole. Markets are pricing in three more rate cuts through the end of the year and Powell will have the opportunity to alter or confirm these expectations in preparation of the September 18 Fed meeting. The other indicator to watch will be Trump’s social media posts on US-China trade talk developments.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Please click here to review our full disclosure.
S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.
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