Concerns over declines in the Turkish currency and the risk of a trade dispute between the U.S. and Turkey pushed stocks lower last week. Turkey and the U.S. are sparring over the jailing of a U.S. pastor by Turkey. The S&P 500 fell 0.2% for the week. Global stocks were more affected by the issues in Turkey as the MSCI ACWI dropped 0.7% higher. The Bloomberg BarCap Aggregate Bond Index rose 0.4%.

Key points for the week

• Stocks dropped this week on concerns about the Turkish currency.
• Inflation rose 2.9% in the last 12 months as tariffs increased prices of many goods.
• The next leg higher in the S&P 500 will likely require a broader set of companies participating in the rally.

Source: https://www.cnbc.com/2018/08/10/us-cpi-july-2018.html

Economics

The U.S. Consumer Price Index was released for July showing a gain of 0.2% and an annual gain of 2.9%. The core CPI posted an annual gain of 2.4%, the largest year-over-year gain since 2008. The recent report strengthens the possibility of two more rate hikes before year’s end as the Fed’s target rate is 2%. Much of the gains in the CPI can be attributed to the rise in input costs as tariffs have raised prices of materials such as lumber, aluminum, and steel. This rise is exemplified in the shelter index as its annual rate is 3.5%. The chart above shows the monthly CPI rates over the last 12 months.

Fundamentals

As the S&P 500 closes in on the record it reached in late January, many are wondering what will push the index to break through. The number of companies participating in the rally will likely need to be expanded. The S&P 500’s gains this year have been concentrated in a few companies primarily associated with technology, internet retail, or social media. The strong earnings in the second quarter showed broad earnings growth and a higher-than-expect number of companies that beat estimates. For the market to go higher, those fundamentals need to be reflected in stock prices.

Fun Story

Nationwide Goat-on-the-Lam Trend

An odd event occurred last week in Hackettstown, New Jersey. 75 goats escaped a livestock auction and were running amuck in town. If this event wasn’t odd enough, it happened a week before in Boise, Idaho. One picture from Boise shows a home’s front lawn getting snacked on by nearly 30 goats. In the words of Lou Brown from the movie Major League, “If it happens a third time it’s called a streak.” Let’s hope it never reaches that point.

This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 INDEX

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

MSCI ACWI INDEX

The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.

Bloomberg U.S. Aggregate Bond Index

The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.