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Aug 29 2018

8/29/18 Market Notes

Easing trade tension and an 18 year high August consumer confidence figure helped push stocks higher for most of the day, with the S&P 500 crossing the 2,900 line for the first time before retreating and closing near the flat line. Walmart (WMT) rose 1.62% helping to lift the Dow Jones Industrial Average higher as 22 of the 30 components ended in negative territory. The Tech heavy NASDAQ also ended at an all-time high as Apple (AAPL) rose 0.81% and Netflix (NFLX) gained 1.07%.

Treasury Secretary Mnuchin praised China’s efforts to support its currency, decisively (ironically) pointing out that such a move to support the currency is not manipulation. None-the-less, the U.S. dollar generally weakened against major currencies as the appetite for risk assets returned to the market. Oil prices spent most of the day in positive territory, before shedding gains to end slightly lower as dollar weakness pressured the commodity. U.S. Treasury yields ended mildly higher, as the benchmark Ten Year Yield closed at 2.88%.

Both investor optimism and consumer confidence are currently at a multiyear high, begging the question “what next”. As the U.S. and global economy continues to thrive and business expansion is set to continue for the next couple of quarters at least, investors have every reason to be optimistic. However, as the narrow market leadership suggest, simply buying an index or being indiscriminant in one’s investment approach could lead to expensive consequences. Focusing on balance sheet strength, diversity of revenue streams and earnings quality are paramount in a fully valued investment environment.

Economic data is likely to dominate investor behavior on Wednesday, as the first revision to second quarter GDP is due. A CNBC / WSJ poll concludes that the consensus expectation for Q2 GDP growth remains at +4.1%, unchanged from its initial reading. Historically, it is not uncommon for the first revision to come in slightly lower than the original reading, with the third reading (which will occur in September) generally benefiting from an upward revision. As markets enter September, which is historically one of the most challenging months for equities, a strong GDP reading could be crucial to keep the ten year old bull market running.

Sincerely,
The GGFS Investment Committee