July saw a very rare event in the equity markets. The S&P 500 went 414 calendar days without making a new 52-week high between May 21, 2015 and July 8, 2016. Since 1929 there have only been 14 instances where the equity market went 300 calendar days or more without making a new 52-week high. Here’s why this could be significant. Over those prior 14 instances, the equity market was higher over the next year 87.5 % of the time with an average return of 12.28%, while the average draw down (decline) during that 1 year period is only 5.48%. (source: CNBC & Bespoke Investment Group)
While this is a positive for equities, we are heading into August, which traditionally is a weak month for stocks. In fact, the month of August has had an average decline of 6.1% over the last 7 years, with significant declines in August 2011 and 2015. (source: Bloomberg)
On the economic front, the initial reading of US Gross Domestic Product (GDP) was released on 7/29/16 at 1.2%, which was well below estimates. While the overall growth number was disappointing, it appears that a decline in inventories had a large negative impact. Inside the details, I found a couple of positives – disposable personal income increased while inflation (as measured by the Personal Consumption Expenditure index) remained below 2%. Rising income with low inflation is a positive for consumers, who ultimately account for 70% of GDP. I expect the US economy to continue to plod along at roughly 2% annual growth. I feel that way because the Citi Economic Surprise Index has turned positive (this index measures how economic data releases have generally compared to economists’ prior expectations. When data is coming in weaker than expected, it declines; when data is coming in stronger than expected, it rises)
Internationally, I am still focused on China and the potential impact on the European Union economy of Britain leaving the group.
As for our upcoming elections, I don’t expect any specific market reactions until after the debates in September. Right now the market is anticipating a Clinton win, with the Senate likely going back to the Democrats and the Republicans holding onto a majority in the House.
In summary, I am cautious due to the seasonally weak period but I am reasonably optimistic about the outlook for the rest of the year.
Please call me if you have any questions or concerns.
August 2016 Calendar of Events (comments and suggestions always welcome)
August the “What will be your legacy” month. Are you a good cook, do you love gardening or are you an animal lover? These are all part of your “legacy”. Take some time during August to think about and write down things you are passionate about and want to pass on to the next generation.
August 5th International Beer Day
August 8th My birthday! It’s also Happiness Happens Day
August 13th International Left-Handers Day
August 14th Social Security Act signed in 1935 by Pres. Franklin D Roosevelt
August 21st Senior Citizens Day – recognizing the contributions our senior citizens make
August 26th Women’s Equality Day
I hope you find this information helpful. Please share this report with anyone you feel would benefit from it.
Sources: CNBC, Bespoke Investment Group, Yahoo Finance