Capital Market Implications for the Week of August 27 - 31, 2018
The government’s second estimate of 2nd-quarter GDP was released last week and at 4.2% it was slightly better than the initial report. Although personal consumption for the quarter was revised down, it was still a healthy 3.8% and it was encouraging to note that several inflation gauges remained unchanged. After a strong June, pending home sales fell in July suggesting the recent housing softness will continue. On the other hand, personal incomes and real personal spending improved in July. Finally, manufacturing activity in August came in much stronger than anticipated. The ISM Index increased to 61.3 and new orders climbed to 65.1. It’s possible that industrial activity spiked due to the threat of trade tariffs, but the current level of activity, a 14-year high, is impressive nonetheless.
With the U.S. and Mexico agreeing on potential changes to NAFTA last week, markets both at home and abroad rallied on hopes of easing trade frictions. For the week, the Dow Jones Industrial Average rose 0.8%, the S&P 500 Index gained 1.0% and the NASDAQ reached a new high mid-week. Retailers and technology companies were the week’s best performers, having gained 2.0%, while telecoms lagged, off -1.6%. International stocks, as represented by the MSCI EAFE Index, increased 0.3% and emerging markets climbed 0.7%. As the long Labor Day weekend traditionally marks the end of summer, the bond pits were quiet last week. As such, the Barclays U.S. Aggregate Bond Index fell slightly along with U.S. corporates while ten-year municipal bonds and high yield bonds were relatively unchanged for the week.
Securities and other investment products are: