Uncategorized, Weekly Update

Non-stop Goodness

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Published September 8, 2017

timingcube_cartoon090817The article below, excerpted from Charles Schwab, displays just how strong global equities have been this year.

Chart 1 below is a table of global stock market returns by month using the MSCI All-Cap World Index (ACWI). August came close to breaking the uninterrupted streak of monthly gains for global stocks. This year has seen the only time the index ever (since its inception 30 years ago) posted a gain in every one of the first eight months of the year, as you can see in the heat map of monthly returns below.

Chart 1: 2017’s uninterrupted and unprecedented streak of monthly gains

2017’s uninterrupted and unprecedented streak of monthly gains
Source: Charles Schwab, Factset data as of 8/31/2017.

The MSCI ACWI captures large and mid cap representation across 23 Developed Markets and 24 Emerging Markets countries. With 2,497 constituents, the index covers approximately 85% of the global investable equity opportunity set.

The 1% gain in the last two days of August turned the month from red to green. It’s not too surprising that August nearly gave us our first monthly pullback since last October. While June is the month that suffers losses most of the time, August has provided the worst average performance of any month. Seasonal tendencies aside, this particular August presented a few challenges to the global stock market:

  • Geopolitics – The most notable daily declines of August often coincided with an escalation of tensions with North Korea.
  • Politics – The U.S. debt ceiling, potential government shutdown, and budget negotiations loom in September (at least, they did until this week’s surprise deal between President Trump and the Democratic leadership). Election relief has faded to reality in Europe as a poll from CNews showed the approval rating of newly-elected French President Macron suffered a sharp drop and his “dissatisfaction rating” jumped to 57% in August from 43% in July. The United Kingdom and European Union still appeared to be far apart during August’s third round of Brexit negotiations.
  • Natural disasters – Hurricane Harvey and Typhoon Hato reminded investors of the cost of unexpected events. Now, Hurricane Irma looms to emphasize that point.

In the face of all these challenges, the stable performance in August illustrates the resiliency provided by a backdrop of rising earnings.

Nevertheless, the risk of a seasonal slump remains. Stocks have posted a decline, on average, in the month of September. However, the well-supported trends of rising earnings, improving global growth, and stronger trade should help to limit the size of potential pullbacks.

Market Update

Stocks came back from Labor Day to a rough day filled with news of a North Korea nuclear test and a hurricane barreling toward the Caribbean and maybe Florida. Stock indexes fell -0.8% on the day while bonds soared in recognition that a second large hurricane in almost as many weeks would certainly keep the Fed rate hike agenda tethered. Stocks bounced back modestly Wednesday with a +0.3% rise as news of a deal between President Trump and Democratic leaders to raise the debt ceiling and fund Hurricane Harvey rebuilding spun a positive tone on Wall Street. Banks got clobbered Thursday on a flattening yield curve which saps profit margins from the industry. Nonetheless stock indexes overall closed flat. Friday brought a mixed session with semiconductors under pressure ahead of next week’s release of Apple’s iPhone 8. Consumer credit rating agency Equifax fell over -15% on news of a breach that exposed the data of millions of customers.

Stocks held reasonably firm given the generally negative tone of the week with Hurricane Irma poised to hit Florida with perhaps record high winds. The S&P 500 (SPY) slipped -0.51% while the Nasdaq 100 (QQQ) was off -1.23%. Small-cap stocks (IWM) split the difference with a -0.93% dip.

Warm wishes and until next week.