- U.S. stocks achieved new highs while international markets continued to lag
- Economic growth in the U.S. was revised up to 4.2% in the second quarter
- Interest rates fluctuated in August with the yield curve flattening
The summer of ’18 has unofficially come and gone and left a strong US economy and stock market in its wake. Apple became the first $1 trillion dollar publicly traded company as investor appetite for U.S. equities was robust. U.S. economic growth was revised up in the second quarter to 4.2%, although some economists attribute the increase to a surge in US exports before tariffs kick in. Nevertheless, the S&P500 gained 3.26% in August, bringing its year to date return to 9.94%.
Technology remained the market leader gaining 6.93% for the month, followed by consumer discretionary (+5.13%) and healthcare (+4.37%). Energy (-3.30%) and materials (-0.45%) were the only sectors in negative territory. Small cap stocks gained 4.31% bringing their year to date return to 14.26%. Value stocks underperformed growth for the month but added a respectable 1.48% in August.
International markets continue to flounder with developed international stocks down 1.93% for the month. Emerging markets dropped 2.7% (-7.18% year to date) in the midst of trade tensions, a strengthening dollar and political and economic turmoil in Brazil, Argentina, and Turkey. Emerging markets saw a bit of respite when it was announced that a trade deal with Mexico was in the works, which leads us to believe that investors may be waiting for more deals to get back into the asset class.
Fixed income investors saw the yield curve flatten in August, with short-term rates increasing while longer maturity yields came down. The Bloomberg Barclays US Aggregate Bond Index increased 0.64% in August but is still down 0.96% for the year. Long-dated bonds performed the best with the decline in long-term rates. High yield (+0.74%), mortgages (+0.61%) and corporate bonds (+0.59%) performed well during the month. As inflation has been ticking up into the Fed’s target level of 2%, we think investors are better served at the shorter end of the yield curve.
Bill Roth, CFA
Sources: Reuters, Morningstar, Wall Street Journal