Weekly Market Commentary August 27, 2018

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The S&P 500 reached an all-time high on Friday, surpassing the previous market high set in January of this year. Investors seemed to be reassured by the Fed’s minutes (see below) and hopeful the unproductive Chinese trade talks will be resolved before tariffs slow the economy. The S&P 500 climbed 0.9% for the week. Global stocks soared as the MSCI ACWI rose 1.3% higher. Even bonds benefited as the Bloomberg BarCap Aggregate Bond Index edged up 0.3%.

Key points for the week

  • The S&P 500 ended the week at a new record close.
  • The Federal Reserve’s minutes indicate gradual rate increases will continue.
  • Markets emphasized the message in the Fed’s minutes and other positive news over unproductive Chinese trade talks.


Source: CME Group

Last week, the Federal Reserve published its minutes, a summary of its August meeting, which shed some light on the Fed’s views, from interest rates to tariffs. The Fed is all but guaranteed to raise rates in September. Market odds give it a 96% probability and offer a 63.7% probability for another hike (or more) in December. The Fed will continue its gradual interest rate increases for now as long as economic activity consistently expands at a sustainable rate. But it will soon revise its policy stance from “accommodative” to “neutral,” reflecting its view that the economy does not need continued support.

Tariffs are a top concern of Fed governors, who are waiting for economic data to assess the damage imposed. In the minutes, the governors said tariffs would have “adverse effects on business sentiment, investment spending and employment. Moreover, wide-ranging tariff increases would also reduce the purchasing power of U.S. households.”

The economy is poised for its best annual growth in a decade due to stimulation from tax cuts and federal spending. The current nine-year bull market is now the longest in history, and the stock market hit a new high last week. Inflation is back to the 2% range, after missing the mark for several years, and the already tight labor market continues to tighten.

The Fed is content, for now, with its current policy stance of steady rate hikes, but the governors are on edge as they wait to see how fiscal policy plays out in the data. The Fed is more likely than not to raise rates two more times this year as the country experiences one of the more robust economies to date.

Fun Story

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