Despite significant issues throughout August, including US political uncertainty, geopolitical tension with North Korea, and a storm that ravaged Houston and other parts of Texas & Louisiana, the S&P 500 and Dow Jones Industrial Average recorded their 5th straight monthly gain while the Nasdaq closed the month at an all-time high.
US economic data continues to remain solid, with 2nd quarter GDP (gross domestic product) revised up to 3% annually, the best quarterly growth since the 1st quarter of 2015. Consumer spending, which accounts for two-thirds of the US economy, grew at a 3.3% annual rate, the highest since this time last year. Consumer confidence remains quite strong. “The Consumer Sentiment Index has been higher during the first eight months of 2017 than in any year since 2000, which was the peak year of the longest expansion in U.S. history,” said Richard Curtin, chief economist for the Surveys of Consumers.
However, there are still areas of the economy that are lagging. While employment remains strong, wage growth remains weak. Housing starts (new homes) and pending home sales have been slowing since May, indicating a potential problem given the solid consumer confidence figures and continued low mortgage interest rates.
Interest rates remain low, with the US 10yr Treasury stuck in a range between 2.1% and 2.5%. Inflation also remains low with PCE (personal consumption expenditures) increasing only 1.4% in July on a year-over-year basis, the smallest gain since December 2015. I anticipate the Federal Reserve will attempt to raise short-term interest rates by 0.25% again in December 2017.
I am also seeing positive economic data internationally. “The cyclical recovery continues. Growth outturns in the second quarter of 2017 were higher than the April World Economic Outlook forecasts in large emerging and developing economies such as Brazil, China, and Mexico, and in several advanced economies including Canada, France, Germany, Italy, and Spain. “ International Monetary Fund (IMF)
So as summer turns to fall and the kids go back to school what can you expect for your portfolio?
Historically, September is the worst month for stocks as the chart below shows. I expect this September could be especially volatile given some key issues that need to be resolved in Washington DC. The debt ceiling needs to be raised or the US Government faces a partial shutdown, the fiscal 2018 Federal budget needs to be completed and approved, and Congress needs to approve emergency aid to Texas and Louisiana for Hurricane Harvey. While I put the odds of a government shutdown in the 30% – 40% range, with the way Washington works I have learned to never say never. I expect discussions will continue to the literal 11th hour – 11:59PM EST on September 30, 2017.
The last US Government shutdown was from Oct 1 – Oct 16, 2013, over the exact same issues – debt ceiling and budget. Ironically, while the stock market fell 2.5% in the early days of that shutdown, it recovered and finished the month of October 2013 higher by 3.8% (basis S&P 500).
The combination of the weak seasonal history of September and the looming fiscal issues has me cautious and alert but not defensive. If anything changes in my outlook I will let you know.
September Calendar of Events (comments and additions for future months are always welcome
- Summer is over and kids are going back to school – please be careful on the roads.
Sep 4th Labor Day
Sept 10th World Suicide Prevention Day – Take a minute, Change a life – look out for those who may be struggling and check in with them
Sept 11th Patriot Day- honoring those who lost their lives on 9/11/01
Sept 12th Eloise and my 9th anniversary
Sept 20th Rosh Hashana begins – wishing all our family, friends, and colleagues of the Jewish faith a very Happy New Year
Sept 21st International Day of Peace – consider lighting a candle for peace
Sept 22nd Autumn begins
Sept 30th Yom Kippur – G’mar Tov
I hope you find this information useful. Feel free to share this information with family, friends and colleagues.
Sources: Yardeni Research, Inc. CNBC.com