Market Outlook – August 2018

Executive Summary

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US large caps jumped 3.7 per cent in July on the back of 20-plus per cent earnings growth readings. Investors swept their trade concerns to the side and focused on corporate fundamentals. The July result more than doubled blue chip performance for the year, pushing the benchmark S&P 500 to 6.5 per cent.

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The Russell 2000 gained 1.7 per cent last month, pushing the small cap index toward 10 per cent for the year. The index trailed its larger cap counterpart by 2 percentage points as investors waved off the tariff threat.

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International equities picked up 2.5 per cent last month as global markets advanced. Investors are playing down the economic impact of tariffs for now. Year-to-date, developed market large caps are flat in dollar terms. Most markets are 4 per cent higher in term of local currency.

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Emerging market equities reversed their tailspin and climbed 2.3 per cent in July. Despite the rebound, emerging market equities remain the worst performing major asset class this year, sagging more than 4 per cent. Most of the pain is being felt in Turkey and Argentina where markets are off dramatically.

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Intermediate-term interest rates rose about 14 basis points in response to stronger economic data. The Barclay’s Aggregate Bond Index closed out the month flat, as coupon income offset price declines. Global Bonds were flat as well.

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Investors’ increased risk appetite helped fuel a mini-rally in high yield bonds. Credit spreads, the yield premium lenders require to extend credit to lower quality borrowers, reversed course and narrowed.