Monthly Market Insights | September 2018

US Markets

Strong corporate earnings and ongoing trade talks propelled stocks higher in August, as investors largely ignored economic events overseas.

The Dow Jones Industrial Average climbed 2.16 percent, while the Standard & Poor’s 500 Index moved 3.03 percent higher. The NASDAQ Composite led, gaining 5.71 percent.1 The month also set a record as August 21 marked the longest-running bull market in U.S. history.2

	Whatever you are, be a good one.
William Makepeace Thackeray, British author

Healthy corporate profits and economic data, including a solid employment report, started the month on a positive note. Domestic stocks turned mixed as worries over Turkey’s currency issues caused international stocks to wobble.

Market Focus

Stocks regained some momentum on news that the U.S. and China would resume trade talks with a possible resolution in sight. The positive international news, combined with more strong corporate earnings reports and solid retail sales, sent stocks climbing once again.

Mexico Agreement

Equity prices continued to march higher on reports that a trade deal with Mexico would be reached. When the agreement was announced, the Dow Jones Industrials rose over 250 points, the S&P 500 hit another record high, and the Nasdaq Composite climbed past the 8,000 mark.3

Attention on Canada

Stocks continued to build on the upward momentum into the final week of the month, though they stumbled a bit in the closing days on concerns that a revised NAFTA agreement with Canada would not meet a White House-imposed deadline.

Sector Scorecard

All sectors of the S&P 500 Index saw gains this month, except for Energy, which was down 2.90 percent. Positive returns were posted by Communication Services (+3.18 percent), Consumer Discretionary (+5.18 percent), Consumer Staples (+0.90 percent), Financials (+0.75 percent), Health Care (+5.44 percent), Industrials (+2.38 percent), Materials (+0.44 percent), Real Estate (+4.01 percent), Technology (+6.80 percent) and Utilities (+2.64 percent).4

U.S. Market Recap for August 2018
S&P 500 3.03% Month ‌ 8.52% Year-to-Date	NASDAQ 5.71% Month ‌ 17.47% Year-to-Date	Russell 1000 3.23% Month ‌ 8.70% Year-to-Date	10-Year Treasury 2.96% Month ‌ 0.45% Year-to-Date
Yahoo Finance, August 31, 2018. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

What Investors May Be Talking About in September

Trade tariffs and strong economic data have dominated investors’ attention this year, but there may be an important story emerging in the housing market.

For the last several months, the housing market has been adjusting to rising home prices, higher mortgage rates, and declining inventories.

The Economics of Housing

Housing is a key component of the U.S. economy, with a direct contribution of 3-to-5 percent to the nation’s Gross Domestic Product.5 This does not include all the additional spending usually associated with home purchases, such as furniture and appliance sales or do-it-yourself projects.

Since the end of 2017, home affordability has declined by more than 10 percent, which partially explains the recent slowdown in housing starts and monthly sales of existing and new homes.6,7

Given housing’s key role in the economy, investors may begin devoting greater attention to housing trends for insights into for economic growth and the financial markets.8

World Markets

Overseas markets sagged under the weight of continuing trade uncertainties and the currency crisis in Turkey, resulting in a loss of 1.5 percent in the MSCI-EAFE Index.9

Europe was dragged lower by concerns that Turkey’s economic troubles would spill over into European banks. Larger markets lost ground, including Germany, which fell 3.4 percent. The U.K. slipped 4.3 percent due to investor’s poor reception of the government’s no-Brexit deal contingency plan.10

Stocks in the Pacific Rim markets fared a bit better. Japan rose 1.4 percent while China’s Hang Seng index lost 2.4 percent.11

World Market Recap for August 2018
Emerging Markets	August	Year-to-Date
Hang Seng (China)	-2.4%	-6.8%
Kospi (Korea)	1.2%	-5.9%
Nikkei (Japan)	1.4%	0.4%
Sensex (India)	2.8%	13.5%
Jakarta Composite (Indonesia)	1.4%	-5.3%
Bovespa (Brazil)	-3.2%	0.4%
IPC All-Share (Mexico)	-0.3%	0.4%
Merval (Argentina)	0.0%	-2.3%
ASX 200 (Australia)	0.6%	4.2%
Europe
DAX (Germany)	-3.4%	-6.3%
CAC 40 (France)	-1.9%	1.8%
Dow Jones Russia Index (Russia)	-6.9%	-5.4%
FTSE 100 (Great Britain)	-4.3%	-3.4%
Yahoo Finance, August 31, 2018. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

Indicators

Gross Domestic Product

The U.S. economy grew at a faster pace in the second quarter than previously estimated, as the GDP growth rate was revised higher, from 4.1 percent to 4.2 percent. 12

Employment

New hiring slowed down in July, with non-farm payrolls increasing by just 157,000. The unemployment rate inched lower, falling to 3.9 percent from 4.0 percent. Wage growth continued its modest expansion, rising 2.7 percent from July 2017.13

Retail Sales

Retail sales gained in July, rising 0.5 percent from the previous month and increasing 6.4 percent versus July 2017.14

Industrial Production

Industrial output eked out a small gain, moving higher by just 0.1 percent as declines in mining and utilities offset a rise in manufacturing.15

Housing

After hitting a 9-month low in June, housing starts rebounded a relatively modest 0.9 percent.16

New home sales dropped 1.7 percent, posting the second-consecutive month of declining sales and the slowest sales rate in nine months. July new home sales were disproportionately weighed down by a sharp fall in the Northeast region, which experienced a 52.3 sales decline.17

Sales of existing homes fell for the fourth straight month, declining 0.7 percent from the previous month. This is the first time since 2013 that such sales have fallen for four consecutive months. 18

Consumer Price Index

Though prices rose a modest 0.2 percent in July, prices over the last 12 months increased 2.9 percent, with core inflation (excluding food and energy) rose 2.4 percent, the fastest 12-month pace since September 2008.19

Durable Goods Orders

Durable goods orders fell 1.7 percent, dragged lower by a sharp decline in aircraft sales.20

The Fed

The release of the minutes from the last meeting of the Federal Open Market Committee indicated that the Fed would likely raise the federal funds rate in September, provided the economy continues to perform along Fed expectations.

The minutes also reflected Fed concerns over the continuing trade disputes, and its potential consequences for economic growth. For now, though, it does not appear that trade tensions will alter the Fed’s anticipated path for future rate hikes.21

By the Numbers