What's On Tap: Expanding Economy Overshadows D.C. Disorder

  • Economic Data Indicates Continued Upward Trajectory

  • Autumn Stock Market ‘Carnage?’—We Don’t Think So

  • Looking Ahead to Consumer Credit, Inflation and Retail Sales

Despite disorder in D.C.—from Congress’ grilling of a Supreme Court nominee and a number of high-profile tech CEOs to reports of West Wing turmoil and dissension—investors focused on concrete data rather than political prognostication. Wall Street has proven resilient to noise out of Washington for the better part of two years, and with robust economic figures as a counterweight, we see no reason that stock prices can’t go higher still.

As the midterm elections approach, we understand that it may become difficult to see the investment forest and trees through the thicket of Washington politicking. But the investment strategies we implement for your money (and our own) won’t be sidetracked from their disciplined expertise. And neither will we. Instead, we’ll continue to keep our eyes on the facts we know rather than the speculation in which others may indulge.

For the year through Thursday, the Dow Jones Industrial Average has returned 6.9%, while the broader S&P 500 has gained 9.1%. The MSCI EAFE index, a measure of developed international stock markets, is down 4.6%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has climbed to 3.32% from 2.71% at 2017’s end. On a total return basis, the U.S. bond market has declined 1.1% for the year.

Economic Data Indicates Continued Upward Trajectory

The economic data paints a portrait of an economy on a continued upward trajectory. The unemployment rate held fast at 3.9% in August as employers added 201,000 jobs to an already tight labor market. Wages are up 2.9% from the same time last year—the best pace of wage growth in nearly a decade.

Plus, data on the manufacturing side of the U.S. economy suggests that output is at its highest level in 14 years, with 16 of 18 major industries reporting growth. Trade disputes remain front-of-mind for manufacturing executives, but actions taken so far by the U.S. and its trading partners have not derailed growth.

Another sign of positive momentum: Ford has sold more than 600,000 F-Series trucks so far this year. Only two years since 1996 (2005 and 2000) surpassed this pace over the same first eight months of a calendar year. Sales of these relatively expensive vehicles are both an indicator that construction jobs are plentiful and ongoing, and that consumers are willing to pay up. We should note that Ford recently issued a recall on many of its trucks for an issue involving seat belts, but we don’t think this bodes ill for the company’s long-term fortunes and Ford’s stock has hardly been dented.

Autumn Stock Market ‘Carnage?’—We Don’t Think So

For years, we’ve been running the numbers and despite some persistent conventional wisdom, it’s not October—famous for the October 19, 1987 Black Monday meltdown and other seminal stock market downturns—that is the worst month of the year, on average, for stock investors. It’s actually September.

The media is starting to catch on. But recent headlines have been overly sensational, which we suppose we should’ve expected with the stock market near an all-time high. Our favorite example this week was that investors were due for “carnage” in the stock market, at least according to an analyst at Ned Davis Research (as reported by Barron’s). But really? Carnage? Let’s go to the videotape.

Since its inception, Vanguard’s 500 Index fund (which we use as a proxy for the S&P 500 since you can’t invest directly in an index) has averaged a 0.34% loss during September, though it gained 2.1% last year and a fractional 0.01% in September 2016. So the September average masks a lot of different scenarios, positive and negative.

Octobers? The index fund has averaged a 0.81% gain over the 42 Octobers since it’s been around—that includes the 21.7% loss in October 1987 and the 16.8% decline in October 2008.

So we’ll ask again… Carnage? We don’t think so.

Looking Ahead to Consumer Credit, Inflation and Retail Sales

Next week, we’ll see informative reports on consumer credit, small business confidence, job openings, inflation, retail sales and the Federal Reserve’s Beige Book of anecdotal reports on economic activity.

If you’d like to learn more about our tactical or fundamental strategies, please contact Steve Johnson at 844-587-7393 or info@bravercapital.com.

Please note: This update was prepared on Friday, September 7, 2018, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. 

Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. 

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be seen as a recommendation to buy, sell or hold any of them.

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