U.S. markets worked higher during the month of August.  The Dow Jones Industrial Average rose 2.2%, the Nasdaq Composite gained 5.7%, and the large cap S&P 500 added 3%.  The mid cap S&P 400 matched the performance of the large caps by rising 3%, while the small cap Russell 2000 gained 4.2%.  International markets, by contrast, were almost all down in August.  Canada’s TSX fell -1%, the United Kingdom’s FTSE gave up over -4%.  On Europe’s mainland, France’s CAC 40 fell -1.9%, Germany’s DAX was off -3.5%, and Italy’s Milan FTSE plunged -8.8%.  In Asia, China’s Shanghai Composite was off -5.3% while Japan’s Nikkei was a lonely gainer, improving by 1.4%.  As grouped by Morgan Stanley Capital International, emerging markets finished the month down -3.8%, while developed markets were off -2.2%.  Gold declined by -2.2% in August, while Silver plunged a much larger -7.2%.  The industrial metal copper declined -5.7% in August.  Brent crude oil rose 4.7%, along with West Texas Intermediate which added 1.5%.

Home price growth remains positive but has retreated from its rapid growth of earlier this year, according to the latest reading from S&P/Case-Shiller.  The S&P/Case-Shiller national home price index rose a seasonally adjusted 0.3% in June, up 6.2% for the year, while the more narrowly focused 20-city index added 0.1%, a 6.3% annual gain.  Economists and housing market analysts have stated that prices couldn’t continue their earlier rate of growth, and it appears the market finally got the message.  Both growth rates are still double the rate of inflation and wage gains, but a step in the right direction for bringing house prices back into the range of more buyers.  In the details, the West continues to be the best with Las Vegas leading the way, followed by Seattle and San Francisco.  New York, which has been hit by recent tax-law changes, was the only metro area to decline in June.

Americans’ confidence in the economy soared to an 18-year high in August, hitting levels last seen during the dot.com boom, reflecting the surging growth in the economy and the lowest unemployment rate in almost two decades.  The Conference Board reported its Consumer Confidence index jumped 5.5 points to 133.4 in August, the highest level since October of 2000.  Americans were confident about both the present and the future.  A measure of current conditions, the present situation index, climbed to 172.2 from 166.1, while the future expectations index advanced to 107.6 from 102.4.  Lynn Franco, director of economic indicators at the Conference Board, stated “Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term.”

It turns out the stellar U.S. economic growth in the second quarter was even stronger than originally reported.  Gross Domestic Product (GDP) was revised up an additional 0.1% to 4.2%, thanks to higher government spending and business investment.  Economists had expected GDP to remain unchanged.  The strong growth, along with the biggest tax cuts in 31 years helped corporations cash in their biggest 12-month gain in four years.  Adjusted corporate profits before taxes climbed 3.3% in the second quarter, up an impressive 7.7% over the past year.  Jim Baird, chief investment officer at Plante Moran Financial Advisors stated, “The bottom line is that the economy remains on a solid growth path and still appears to have the potential to remain on a positive track for some time to come.”

The first week of September has been challenging as markets retreat from their August highs. The rout in emerging markets and international equities is continuing, with emerging markets equities entering bear market territory yesterday. So far, we do not see signs of this sell-off spreading to US equities or other asset classes, but we will watch these developments closely. With a cyclically adjusted price to earnings ratio of around 33, US equities are historically expensive. However, despite these challenges, our indicators remain positive and our rating for the U.S. equity market at this time is positive.

Do you have a game plan for when the markets head south? If not, we should probably talk. Call us today at 888-510-2362