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Week in Review

Week Ending: Friday, August 17, 2018

Recap & Commentary

Market returns for the week were mixed. In the U.S., equity markets ticked higher thanks to continued strong earnings and reports of possible trade talks between China and the U.S. International markets fell as concerns about Turkey continued to weigh on both developed and emerging markets.

On Friday, President Trump tweeted that the SEC should look into companies moving from quarterly to semi-annual reporting.  The idea isn’t necessarily new, as JP Morgan CEO Jamie Dimon and Warren Buffett have both argued in the past that quarterly reporting promotes short-term thinking and limits innovation. Critics believe that quarterly reporting increases accountability and transparency, which in turn boosts investor confidence helping explain, perhaps in part, why U.S. markets trade at a higher multiple than any other developed market.  For its part, the SEC has actually been studying the idea for several years.

Chinese economic data (industrial production, fixed asset investment, retail sales) missed consensus expectations. Whether or not this reflects the impacts of the current trade dispute is uncertain. The veracity of Chinese data is highly questionable, and trying to determine a trend from a single observation in any data set is difficult.

Economic Bullet Points

Small Business Optimism rose by 0.7 points in July to 107.9, according to the popular NFIB index. That mark beat consensus, and it was the second highest reading in the survey’s 45-year history. 6 of the 10 index components increased M/M, driven by expectations that the economy would improve, thoughts that now is a good time to expand, and commentary that capital outlays would accelerate.

Retail Sales rose 0.5% at the headline level in July and beat the consensus-high forecast of 0.3%. Importantly, sales growth was not concentrated in any particular area. Moreover, after consumer spending spiked last quarter, there was concern that expenditures would fatigue. However, this upbeat print gives a very favorable assessment of the state of the US consumer and sentiment regarding spending.

US Manufacturing– Broad industrial production data was flat from June to July and came in below estimates due mainly to a rare 0.3% decline in mining volumes and a third straight, mostly weather-related, decline in utilities output. An upward revision to June figures, however, from a 0.6% to a 1.0% gain, more than offset the consensus miss. Overall, the trend in industrial production remains solidly upward with growth over the past year notching the biggest one-year gain since early 2011.

Productivity and Costs– Non-farm productivity picked up sharply in Q2, rising at a 2.9% annualized pace, which is a meaningful improvement from the 0.6% average increase seen from 2011-2016. Unit labor costs, conversely, fell in Q2, but are up ~2.0% Y/Y. Further, with non-labor costs up 3.5% Y/Y, inflation remains firm.

Housing Starts were again lackluster, but builder confidence remains elevated.

Consumer Sentiment softened to the lowest level in a year, led by increasing uneasiness from respondents in the lowest third of the sample’s income distribution.

Of Note

According to industry group Fundstrat, the cryptocurrency market is down nearly 70% since the end of 2017.

Market Indices Week of 8/17

S&P 500                           0.6%

Russell 2000                   0.4%

MSCI EAFE                      -1.2%

MSCI EM                         -3.7%

Commodities                 -1.0%

Barclay’s Agg.                 0.0%

US Dollar Index             -0.3%

10-Yr Yield                      2.88%

WTI Oil ($/bl)                     $66

Gold ($/oz)                       $1,177

The Week Ahead

  • Existing Home Sales
  • New Home Sales
  • Jobless Claims
  • Durable Goods Orders

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