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Market Recap August 2019

-Darren Leavitt, CFA

Investors endured a volatile month in August that saw most developed and emerging equity markets decline. The S&P 500 lost -1.81% during the month, the Dow lost -1.72%, the NASDAQ shed -2.60%, and the Russell 2000 lost just over -5%.  Developed International markets lost -1.92% while emerging markets lost -3.78%.

Uncertainty regarding trade between the US and China escalated fears of an already evident slowdown in global economic growth.  In turn, central banks across the globe expressed their concerns and offered various plans to stimulate their respective economies.  Here in the US, the Federal Reserve has acknowledged the adverse effects of the ongoing trade war and is now most likely poised to cut the Fed Funds rate in September by 25 basis points.  President Trump also proposed further tax cuts to help stimulate the economy, but nothing formally was announced.  In Europe, the ECB has introduced further quantitative easing, and in China, officials have continued to try and boost their economy with various monetary policies and incentives.

Negative interest rates in many developed markets coupled with a flight to safe-haven assets due to the increased market volatility induced a significant rally in global debt.  The rally inverted the US 2-10 yield curve (shorter maturity rates are higher than longer-dated maturity rates) which in the past has been a harbinger of an impending recession, generally thought to come 18 to 24 months hence.  The 2-year note yield closed the month at 1.50%, down from 1.87% or 37 basis points lower, the Ten-year bond yield closed down 57 basis points for the month and closed with a yield of 1.51%.  These were enormous gains for US Treasuries- as bond prices move up when their yields move down.  Investment grade, High yield, and emerging market debt also did quite well during the month.

Economic data in the US was mixed in August.  The consumer is a crucial component to the economic outlook and Consumer spending data along with retail sales during the month was better than expected. The spending data was most likely aided by the continued strength in the labor market where job growth continues to be stable, and wages have increased as well.  However, consumer sentiment indicators took a step back during the month as fears of a prolonged trade war with China, and the possibility of a recession weighed on sentiment.   Manufacturing data in the US signaled contraction for the first time, and global manufacturing data for the most part also continued to show weakness.

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