Historically, August has proved frequently to be a volatile month for equities and yesterday’s market action reinforced the August data. The Dow 30 Industrial Average closed yesterday at 25,717, down over 700 points from Fridays close. Today, as I write this, the Dow is up 193 points, trading at 25,906. Even so, 2019 has been a good year for stocks – the S&P 500 is up over 13% year to date through August 4th and sits a little over 5% from its closing high on July 26th.

So, what is making our markets anxious? Last weekend, China retaliated against Trump’s new tariffs by devaluing their currency, the yuan. Trump is calling China a “currency manipulator”. LPL Research believes both sides are testing each other with hardball negotiating tactics and that there are still opportunities for progress. Also, the Federal Reserve on July 31st lowered interest rates 25 basis points in response to a slowing global economy and desire to keep the yield curve from inverting. Yield curve inversion is when long term interest rates are the same or lower than short term rates. Loosening monetary policy and ending balance sheet sales may help steepen the curve into a more normal shape, but the markets are concerned and keeping a close eye on it.

Looking forward, LPL Research believes the FED has started to course correct as part of a risk management strategy, not as a response to imminent recession. LPL thinks the FED will cut its policy rate by another 25 basis points before 2019 is over to reassure investors, buoy the yield curve, and ease pressure on global currencies. The European Central Bank and the Bank of Japan have also committed to more accommodative policy actions in the months ahead. Lower interest rates can boost economic activity by reducing financial costs for home and auto loans, while also factoring into improved valuations of financial assets. 

The U.S. economy has exhibited trend-like growth in the range of 2.5% for the first half of 2019. Despite weaker business investment due to the trade uncertainty, growth has been supported by a fully employed consumer, who is benefitting from improving wages and a lack of threatening price pressures. LPL Financial reminds investors that while the economy is slowing, it is still growing, but temporary bouts of volatility may continue and potentially weigh on asset prices and investor sentiment. 

If you wish to speak with me in person, I encourage you to look at our Legacy Wealth Planning website (lwpreno.com).  Simply click the “make an appointment” tab and go to Mark Levy and my calendar will come up for you to block out a time for us to meet in my office. You may also block out a time for a phone call, or of course, call me anytime during business hours to discuss your questions. We hope you are enjoying summer as we go into its second half. – Mark

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Market Commentary and LPL Research Weekly Economic Commentary, both dated August 5, 2019 along with LPL Research Daily Market Update, dated August 6, 2019.  Approved Tracking #: 1-880318.