Market Perspective for August 31, 2019

Equities rallied this week on low volume ahead of the Labor Day weekend. The Dow Jones Industrial Average advanced 2.94 percent, the S&P 500 Index climbed 2.69 percent, the Nasdaq 2.59 percent and the Russell 2000 Index 2.39 percent.

SPDR Communication Services (XLC) gained 3.38 percent, SPDR Financial (XLF) 3.14 percent, SPDR Materials (XLB) 3.13 percent and SPDR Industrial (XLI) 3.60 percent. All eleven of the S&P 500 sectors were positive for the week.

Low volatility funds delivered a strong performance. iShares Edge MSCI Minimum Volatility USA ( USMV) gained 2.08 percent. Vanguard Dividend Appreciation (VIG) benefited from heftier industrial exposure and climbed 2.84 percent. Schwab U.S. Dividend (SCHD) has larger weightings in Dow Industrial stocks and rallied 3.04 percent.

Economic data showed an improving U.S. economy. July durable goods orders increased 2.1 percent, beating expectations and rising from June’s 1.8 percent. The Conference Board’s consumer confidence index slipped from 135.8 to 135.1 in August, but that was still ahead of expectations of a decline to 127.8. The University of Michigan’s consumer sentiment survey slowed to 89.8 as it picked up investor concerns over the Federal Reserve’s rate cut.

Weekly jobless claims remain near multi-decade lows at 215,000. The GDP revision trimmed growth to 2 .0 percent from 2.1 percent, but that was better than the economist consensus of 1.9 percent. The Bureau of Economic Analysis’ measures of consumer spending and core inflation for July both met forecasts at 0. 6 percent and 0.2 percent growth. Strong consumer spending and low inflation are a recipe for solid growth heading into the final months of 2019.

Bond yields peaked mid-week. The 10-year Treasury yield hit a low of 1.45 percent on Wednesday before closing the week at 1.51 percent. iShares Barclays 20+ Year Treasury (TLT) climbed 0.93 percent for the week, but that was below the 1.60 percent gain it had early on Wednesday. iShares iBoxx High Yield Corporate Bond (HYG) increased 0.68 percent on the week. Fidelity Corporate Bond (FCOR) returned 0. 24 percent.

The U.S. Dollar Index rallied 1.30 percent after investors focused on the potential for quantitative easing at the European Central Bank. Still, iShares MSCI EAFE (EFA) gained 2.02 percent and a relief rally in beaten down emerging markets lifted iShares MSCI Emerging Markets (EEM) 2.87 percent.

Earnings season was hit and miss with a wide spread between retailers. Dollar General (DG) and Tiffany’s (TIF) returned 13.94 percent and 4.37 percent, respectively, after delivering solid earnings. Best Buy (BBY) and Ulta Beauty (ULTA) slid 3.87 percent and 26.27 percent after missing forecasts. Hewlett Packard Enterprise (HPE) advanced 8.39 percent this week, while Workday (WDAY) slipped 7.73 percent.

Earnings season is almost finished with 99 percent of companies reporting. The earnings growth rate for the quarter is negative 0.4 percent, up from the negative 2.7 percent consensus forecast at the end of June.

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