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It was a hum-drum August after an exciting summer of international news. No Fed meeting, dollar flat, and oil playing nice. Here are some key points to take away.
Last Month Performance
The S&P 500 TR ended the month flat (0.14%), the bond market, measured by the Barclays Aggregate Bond Index, was slightly negative (-0.55%)(1) as the 10 year treasury increased over 8% to 1.58%(2). The S&P 500 actually showed an extreme resilience to volatility as it never moved up or down more than 1% on any trading day during the month, creating the tightest trading month in over a decade(3). From a sector standpoint two of our three favorite sectors (Financials and Energy) were among the top 3 performing sectors for the month, with Financials leading the way at 3.8%(3).
International Markets: Post Brexit
International markets seemed to shrug off Brexit concerns as the European markets were flat (0.3%)(3). Since this is a long-term negotiating process, the real impact of the Brexit is still long from being known. However, there seems to be somewhat optimistic outlooks with the EU’s ability to function. The U.K. may have more potholes to avoid and we expect the pound to weaken over the coming months and through the rest of the year. Emerging markets continue to be a positive performer this year as many EM countries are pricing in less fear of low energy prices. As energy prices continue to climb we expect more healing in these markets and potentially a position to be added in our models.
On Yellen, on Dudley, on Brainard and Bullard! Markets are pricing in, and we are in agreement, that the Fed will not increase rates until December, making them more of a seasonally-themed Fed. We don’t believe the 4 voting members and the other 6 are purposefully waiting until te Deck the Halls, however their data-dependency is causing them to hold off and no one really expects them to increase rates until after the elections. We still will expect 2 to 3 rate increases next year.
We don’t expect the low volatility to continue throughout the rest of the year. Historically, volatility seems to pick up in the months surrounding the election and while election years that are not in the middle of a recession tend to still end the year positive, we assume that there will be a heightened sense of negative sentiment as the nation continues to decide among two very unattractive candidates.
As always, if you have any questions at all we are here to help.
(1) Morningstar Office data
(3) LPL Monthly Review: August 2016
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.