Economic Insights - August 2019

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Economic Insights - August 2019 LoadingADD TO FAVORITES

The month of July saw the S&P 500 gain 1.5 percent, while the DJIA was up 1 percent and the Nasdaq Composite rose 2.3 percent.  All three indices posted new highs during July.  And the July gain for the S&P 500 came after the index realized a 6.8 percent gain in June.  For the year, the S&P 500 index began August up 17 percent. 

With stocks overbought in the short term, the weak seasonal pattern which usually dominates August and September, and investor portfolios over-weighted with low-yielding bonds, we expect the markets to move sideways until, something changes.  Today, the markets are waiting for reduced uncertainty over an extraordinary spectrum of issues ranging from trade to monetary policy to Iran to Brexit to “an energy glut” to immigration to an AI-based tech boom to radically changing regulatory priorities.  The last time the world faced this kind of uncertainty was the end of World War II.

The implications vary substantially by country.  For the month of July, most “country ETFs” ended up struggling. With France, Germany, Hong Kong, India, Mexico, Spain, and the UK all down more than 2 percent in July.  Silver was the best asset class in July with a gain of more than 6 percent.  Year-to-date, the best performer in the entire world matrix is the U.S. Tech sector with a gain of more than 30 percent.  Russia ranked second at +25 percent.

Between now and early 2021 most of these uncertainties should be resolved and we believe that investors who objectively track the trends will be well rewarded.  Those who shift with the daily news will suffer.

What are the near-term implications?

Consider the U.S. economy.  It is giving decidedly mixed signals as employment and consumer spending stay strong but manufacturing growth stumbles.

As of August 2019, the Sino-American trade war is at a critical juncture.  As explained in the June 2019 issue of our sister-publication, Trends, the U.S. holds all the cards in a protracted trade war.  However, China seems intent on holding out as long as possible.  That means U.S. manufacturers are suffering short-term discomfort, which is beginning to show up in the numbers.  On the other hand, U.S. workers and consumers are doing very...

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