As August waned, the markets treated investors to a few welcome surprises. The broad-market S&P 500 capped four weeks of gains and crossed the 2,000 mark for the first time (its best month since February) and is up 8.4% year to date. The S&P just inched over the 2,000 threshold, so the markets are still waiting to see if there’s strength behind that number. In addition, the Dow Jones Industrial Average is trading near its all-time high, boosted by strong consumer and manufacturing data. Overall, it was one of the best Augusts in more than a decade.
|7/31/14 Close||8/29/14 Close||Change||Gain/Loss|
Performance reflects price returns as of August 29, 2014.
The Institute for Supply Management’s manufacturing index surprised on the upside, coming in at 59, its highest level since March 2011. Any reading above 50 is a sign of expansion, and economists had predicted a slight slowdown for the month instead of a two-point bump over July. Consumer sentiment came in higher than expected, as well. It remains to be seen if the jobs report will follow suit. We’ll see a new nonfarm payroll report on Sept. 5, which will add insight into labor strength. The Federal Reserve has indicated that it expects to keep short-term interest rates low even as the economy and jobs strengthen.
In her speech from Jackson Hole, Wyoming, Fed Chair Janet Yellen presented a balanced look into the issue of labor market slack and how monetary policy should respond over time. The bigger questions are how rapidly that slack will be taken up and how the Fed should position monetary policy in response. Yellen offered no clear answers, according to Chief Economist Scott Brown, but indicated that the central bank is monitoring several job market gauges, inflation and GDP growth, among other economic signs to guide its decisions about tapering QE3 (expected to end after the Oct. 29 meeting) and raising short-term interest rates (expected mid-2015). On the domestic front, Brown believes real GDP growth will expand at a moderately strong pace for the remainder of the year, while inflation is likely to trend below the Fed’s target.
Meanwhile, events overseas are making headlines, as conflicts escalate in Eastern Europe and the Middle East, but U.S. investors seem content to allow geopolitical issues to remain on the backburner, for now. In fact, it appears many are adding to their portfolios; sidelined cash is at a 30-year low. European markets remain cautiously optimistic in anticipation of renewed economic stimulus from the national governments and/or the European Central Bank, though economic weakness on the Continent puts downward pressure on global bond yields.
“The 5- to 30-year U.S. yield curve is the flattest it has been since the 2008 financial crisis, so the bond market is worried about something,” writes Chief Investment Strategist Jeffrey Saut. “Stock pickers at the Bank of Montreal, however, are betting on improving growth in the U.S., and a decline in the euro currency, which should be bullish for U.S. equities. I agree and continue to believe we are in a secular bull market that has years left to run.”
As you can see, the markets heated up along with the weather last month, but I hope the headlines won’t distract you from focusing on the long-term success of your financial plan. If you’d like to discuss recent market events or want to review your portfolio as we head into year end, please call me. I look forward to speaking with you.
David Moore, RFC
Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The performance mentioned does not include transaction costs which would reduce an investor’s return.