August Market Overview

Business person working at desk looking at charts

The stock market experienced heightened volatility in August as yet another escalation in the U.S.-China trade war took center stage. As such, virtually all stock market indices declined for the month, including the S&P 500, which was down 1.6%.

Heightened trade tensions along with a corresponding slowdown of global macroeconomic data caused investors to question the sustainability of the economic expansion and increasingly question whether the economy (both the U.S. and globally) may be approaching a recession. The result was a further decline in interest rates, driving an inversion of the yield curve between the 10-year and 2-year Treasuries. Recall, an inversion is when short-term interest rates are higher than long-term rates. This is concerning to investors because it suggests that near-term economic prospects are superior to longer-term economic prospects and has historically foreshadowed a recession.

Fortunately, the U.S. consumer remains healthy, with consumer confidence at 135.1 in August. The strength of the U.S. consumer continues to be fueled by the benefits of low unemployment/rising wages, rising home values, and a stock market that remains near all-time highs.

Still, numerous other macroeconomic data points illustrated a slowdown in the global economy. These include the U.S. ISM manufacturing index, which came in at 49.1 for August (a reading below 50 is contractionary), slowing growth in China, and slowing growth across the Eurozone.

Central banks around the world are taking action to address the slowing growth, with several countries cutting interest rates and others expected to follow. While it is clear that a reduction in interest rates is directionally supportive of stimulating growth, we maintain that the most significant potential growth driver is a resolution to some of the major geopolitical controversies, namely the trade dispute between the U.S. and China as well as Britain’s exit from the EU. Without resolution to these critical matters, it may be difficult for businesses to make informed investment decisions.

The monthly Market Overview is written by two members of MACRO’s Investment Committee: Mark Cortazzo, CFP®, CIMA®, and Christopher Moffett, CFA.

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