Quarterly Market Review: July-September 2018

The Markets (as of market close September 28, 2018)

The third quarter proved to be very strong for domestic stocks. July saw the major benchmark indexes listed here enjoy robust gains, led by the large caps of the Dow and S&P 500. Global stocks also rebounded in July, with the Global Dow surging 3.76% by the end of
July. Favorable economic indicators and encouraging corporate earnings reports were enough to quell investor concerns over the continuing saga that is the back-and-forth trade tariffs between the United States and China.

August saw stocks continue to push ahead. Several of the benchmark indexes listed here reached record highs during the month. Both the Dow and S&P 500 posted monthly gains of 2.16% and 3.03%, respectively. However, tech stocks and small caps made notable monthly gains. The Nasdaq increased by almost 6.0%, while the Russell 2000 eclipsed 4.0%. Corporate earnings continued to soar on the heels of corporate tax cuts, consumer spending, and global growth.

Toward the end of September, a new round of reciprocal tariffs between the United States and China kicked in as it appears neither economic giant is ready to flinch. The United States imposed an additional $200 billion in tariffs on Chinese goods, prompting China to assess $60 billion worth of tariffs on U.S. products. This follows each country’s initial volley of $50 billion in tariffs on their respective imports. As a result, the benchmark indexes listed here produced a mixed bag of returns for the month. The large caps of the Dow and S&P 500 posted gains, as did the Global Dow, which rose a strong 1.50% for September. However, the Nasdaq and the Russell 2000 fell from their August end-of-month values.

Last Month’s Economic News

  • Employment: Total employment rose by 201,000 in August after adding 147,000 (revised) new jobs in July. The unemployment rate was unchanged for the month at 3.9% (4.4% in August 2017).
  • FOMC/interest rates: The Federal Open Market Committee met in late September and raised the target rate range 25 basis points to 2.00%-2.25%. This is the highest rate since April 2008. There is also the likelihood that another 25 basis point increase is on tap for December, with the possibility of three more hikes coming next year.
  • GDP/budget: The second-quarter gross domestic product showed the economy expanded at an annualized rate of 4.2%, according to the Bureau of Economic Analysis. The first-quarter GDP grew at an annualized rate of 2.2%.
  • Inflation/consumer spending: Inflationary pressures have remained weak while consumer spending continues to be strong. Prices for
    consumer goods and services rose only 0.1% in August, the same mark reached in July.
  • Housing: New home sales rose 3.5% in August after falling 1.7% in July. Sales are up 12.7% over the August 2017 estimate. New home prices fell in August.
  • International markets: Some global stocks have enjoyed a strong run of late. Japanese stocks have approached highs not seen since the early 1990s. Germany, France, and the United Kingdom all saw gains in their respective stock benchmarks. While stocks have flourished  tensions have risen between the United Kingdom and the European Union as they continue to hash out a Brexit deal. Throughout the past several months, the ever-escalating trade battle between the United States and China has weighed on investors around the globe. Toward the end of the month, Chinese stock benchmarks gained strength, possibly signaling investor apathy toward the potential impact of the trade war with the United States.
  • Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, soared in September, nearing an 18-year high. Consumer confidence in present economic conditions grew, as did consumer expectations for continued economic growth.

Eye on the Month Ahead

The summer months proved full of volatility for stocks, as investors were inundated with negative rhetoric between the United States and several of its trade partners. The last quarter of the year is expected to bring much of the same. The Federal Open Market Committee meets twice more, in early November and mid-December, with the likelihood of at least one more interest rate increase on tap. The economy enjoyed robust growth during the second quarter, according to the gross domestic product. Will growth approach 4.0% in the last quarter of the year? If consumer spending continues to expand as it did during the summer months, economic expansion could equal or surpass third-quarter growth rate.

Data sources: Economic: Based on data from U.S. Bureau of Labor
Statistics (unemployment, inflation); U.S. Department of Commerce (GDP,
corporate profits, retail sales, housing); S&P/Case-Shiller 20-City
Composite Index (home prices); Institute for Supply Management
(manufacturing/services). Performance: Based on data reported in WSJ
Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S.
Energy Information Administration/Bloomberg.com Market Data (oil spot
price, WTI Cushing, OK); w w w .goldprice.org (spot gold/silver); Oanda/FX
Street (currency exchange rates). News items are based on reports from
multiple commonly available international news sources (i.e. w ire
services) and are independently verified when necessary with
secondary sources such as government agencies, corporate press
releases, or trade organizations. All information is based on sources
deemed reliable, but no warranty or guarantee is made as to its accuracy
or completeness. Neither the information nor any opinion expressed herein
constitutes a solicitation for the purchase or sale of any securities, and
should not be relied on as financial advice.

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