Market Outlook – September 2018

Executive Summary

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US large caps advanced 3.3% in a usually quiet August, as trade negotiations and a tightening Fed drove investors toward US equities. Much of the advance was fueled by large technology stocks with Apple gaining 20%, Amazon up 13% and Netflix 9% higher on the month. August gains helped push the blue chip index toward a 10% advance for the year.

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The Russell 2000 notched a 4.3% gain in August, pushing the index of smaller companies over 14% for the year. International trade concerns blended with dollar strength continues to fuel investor interest in US small caps. Upbeat US economic data helped confirm their favorable views.

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International equities slipped 1.9% in August, pushing developed market large caps into negative territory for the year. Most foreign equity markets are gaining year-to-date in local currencies if not for the dollar’s 3.3% advance for the year. Investors fretted about the Italian budget and local exposure to emerging market debt.

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Emerging market equities continued their downward trend last month, slipping 2.7% in August. The MSCI Emerging index is off 7% for the year. Worries about US-China trade tensions permeated trading, sending Chinese stocks sharply lower. India’s rupee and the Argentine peso hit record lows while Turkey’s lira plunged 25% of its value against the dollar.

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Intermediate-term interest rates slipped about 10 basis points in response to global uncertainties, despite stronger economic data at home. The Barclay’s Aggregate Bond Index gained 0.6% in August, leaving the broad bond index off 1% for the year.

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Credit conditions deteriorated fractionally, as coupon income more than offset spread widening. High yield bonds are leading fixed income markets higher this year.