September 4, 2018

Data Source: Bloomberg

Highlights:

  • U.S. equities continued their year-to-date dominance over international markets with the S&P returning 3.3% for the month versus -2.8% for MSCI Europe, 0.2% for MSCI Japan, and -2.7% for MSCI Emerging Markets.
  • On the 8/1/18, Apple reported strong quarterly earnings, and investor sentiment quickly swung back into Nasdaq 100 which ended the month up 8.9% versus 3.3% for the S&P 500 Index. 
  • U.S. fixed income generated a positive monthly return as the sector benefited from a flight to the U.S. dollar which helped high quality safe-haven sectors such as U.S. government issues. 
  • The U.S. Treasury 10-Year yield dropped from 3% to 2.86% over the month causing the 2-10 year term structure to flatten closer to zero as investors reassess the inflationary landscape despite U.S. core inflation trending above 2%. 
  • The relative poor performance of emerging markets is being driven by local political issues in Turkey, South Africa, and Brazil that encompass broader concerns over political interference into private businesses, financial markets, and central banking
  • Weakening emerging market currencies and a slower growth picture could make high debt burdens taken on to fuel recent economic growth unmanageable.  The concern for heavily indebted countries like Turkey is that much of this debt (dollar-denominated debt no less) has to be rolled over starting in 2019.
  • Europe is grappling with renewed debt and economic growth issues surrounding Italy as well as confidence that the European Central Bank will be able to follow the U.S. Federal Reserve in exiting quantitative easing with the goal of normalizing interest rates.
  • The growth picture in Japan is shaping up to be relatively better as capital spending, particularly spending focused on technology, is providing a boost to core drivers of future growth. 
  • As has been the case for much of the year, U.S. technology led all major sectors followed by consumer discretionary and health care while late stage cyclicals (energy, materials, and industrials) lagged. 
  • Among major factors, ‘Momentum’ and ‘Quality’ outperformed ‘Value’ and ‘High Dividend’.  It’s been a growth investors market for most of the year with value and dividend focused investors lagging. 
  • Regardless of U.S. political sentiment, the U.S. remains in the growth driver’s seat, leaving much of the world behind (which will only get exasperated should more trade tariffs be imposed).  
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