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August Month in Review
What seemingly was shaping up to be our worst month of the year surprised many investors with a late month push, creating more of a ho-hum final result for the broad markets. The only index that ended up in negative territory (that we track for these monthly reviews) was the Russell 2000, posting a -1.27%. The S&P 500 ended +0.31%. The Russell 3000 ended +0.19%. The Dow Jones Industrial Average and Nasdaq Composite Index both ended at the top of our indices at +0.65% and +1.43% respectively; and even with the geopolitical tensions rising overseas, the MSCI World ex US index ended flat at -0.02%. The Barclays Aggregate Bond Index even had its best month of the year, +1.08%1. As in April and May, volatility spiked on news that had nothing to do with the health of the markets, but everything to do with the political gaming between sovereign nations, namely the United States and North Korea.
Our economy continues to show strength in numbers. Our economic leading indicators all show signs of continued strength, not only in the US, but in many of the overseas countries. The Fed has slowly telegraphed that it is less likely to increase rates until inflation picks up and specifically wages increase at a better pace. The market has almost fully priced in no rate hikes for September 20th’s Fed meeting and November 17th’s meeting. However it is still showing a 36% chance of an increase in December’s meeting. Our expectation is that if the economy continues to show improvement and we get a small increase in growth of wages and inflation, that the probability may rise above 50% and we will be more likely than not to have a hike in December. If geopolitical tensions continue, we could see the Fed taking a back seat until next year.2
As we move on into September we are reminded that historically, September is (on average) the weakest month of the calendar year. That being said, the volatility, or lack thereof, that we are experiencing this year is reminiscent of the 1995 year of low volatility. And while we don’t have many years to pull from, looking at 1995, September contributed +4.22% of the 37.58% return for S&P 500 for the year1. Put another way, September contributed over 1/10th of the return for the year. So while we would not be shocked if the markets began to show more volatility for the rest of the year, we also realize that making trade decisions based on calendar year data is a risky game to play. We maintain a much more methodical and optimistic view of the overall markets for the remainder of the year.
As a note of portfolio rearranging, we have begun to increase our positions in international markets, namely European and emerging markets, as we have been historically under-allocated there. We feel there is good reason to shift our portfolio to being fully weighted in these areas of the global market and are using satellite sector proceeds to fill those positions.
If you have any questions or wish to discuss our thoughts in more detail, please do not hesitate to reach out.
LPL Financial Advisor
Vice President, AGH Wealth Management
The economic forecasts set forth in the article may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Investing involves risk, including the loss of principal.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.