Market Outlook – September 2018

Executive Summary

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.

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.

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.

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.

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.

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

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