Markets, Economy

Weekly Kickstart (08/26/2019-08/30/2019)

8/26/19 8:00 AM

iStock-626627280.jpgStocks remained under pressure last week, as the S&P 500 fell by 1.44 percent to 2,847.11. That still left the benchmark index up 13.57 percent 2019-to-date, and 5.91 percent below the all-time closing high. Looking past the disappointing finish to trading last week, overall market sentiment has shown signs of stabilizing. For example, the latest AAII survey revealed that 26.64 percent of individual investors believe stock prices will generally rise over the next six months, up from 21.66 percent just two weeks ago. At the same time, only 39.72 percent of respondents now expect stock prices to decline over the next half a year, a big reversal from 48.20 percent earlier this month. Even after the latest improvements, though, both investor gauges remain at relatively extreme levels. The AAII researchers added that the S&P 500 has typically experienced “above-average and above-median returns during the 6- and 12-month periods” following such unusually low readings on bullish sentiment.


The initial catalyst for August’s spike in market volatility was the announcement at the beginning of the month of a new round of tariffs to be levied on an additional $300 billion worth of Chinese goods starting in September. Even more tariffs were announced by both China and the United States last Friday, but encouragingly investors in a separate AAII survey were asked if they had made any portfolio adjustments as a result of recent trade developments and the majority of respondents said that they have yet to make any changes. Similarly, few 401(k) participants appear to have panicked during the trade-related market swoons this month. On Monday August 5th, for instance, the S&P 500 plunged by almost 3 percent, and the news media was regularly highlighting the Dow’s nearly 800-point decline. Despite the sensationalism, Alight Solutions estimates that just 0.044 percent of 401(k) assets were traded that Monday. Although that is well above the 0.016 percent of total assets traded on a typical day, it suggests that there was still only a minimal amount of reactionary 401(k) trading going on as equities tumbled. Structural changes such as the increased use of target date funds and the growing role of digital financial advice have likely helped many 401(k) investors avoid making emotional-based trading decisions at a potentially inopportune time. Additional assistance is of course available from consulting with a traditional financial advisor and as always, we are here to answer any questions you may have.


Last week was extremely light in terms of economic data releases but to recap what we did learn, the positives included that the 30-year mortgage rate slid to a roughly 3-year low, refinance applications rose, existing home sales increased, and the number of Americans making first-time claims for unemployment benefits fell to a near-half-century low. As for the negatives, regional manufacturing activity deteriorated, and new home sales declined, albeit from a sharply upward-revised gain in the prior month. This week the pace of economic data picks up slightly with a few important reports on factory output, housing, employment, consumers, and inflation scheduled to be released, along with the first official revision to the government’s estimate of U.S. gross domestic product (GDP) growth during the second quarter of 2019.


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Sources: Econoday, AAII, Twitter, Alight, FRBSL

Post author: Charles Couch