In spite of the destruction from Hurricane Harvey, markets remained in rally mode as an upward revision for Q2 GDP and hopes for tax reform pushed markets broadly higher. The S&P 500 was up 0.7% and the MSCI ACWI closed 0.9% higher. The Bloomberg BarCap U.S. Aggregate Bond Index ticked up 0.2%. While pending home sales were disappointing all other economic releases including crude inventories, non-farm payroll and unemployment data pointed to a maturing recovery.
In coming weeks, Congress failing to increase the debt ceiling remains the top risk. The President’s desire to fund a wall, Republican deficit hawks and Democrats looking to score political points add enough uncertainty to make the issue worth watching.
Key bullet points for the week
- The jobs number, GDP revisions and inflation all support thesis of an economy doing just fine, but not stupendous
- Harvey’s impact should be mostly short-term: Houston has better geography, wealth, and social capital than New Orleans
- Markets performed very well this week
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
The U.S. economy grew faster than initially reported in Q2 with signs that the momentum was sustained at the start of the Q3. Gross domestic product increased at a 3% in the April-June period. The upward revision from the 2.6% reported last month reflected robust consumer spending as well as strong business investment. Growth estimates for the third quarter are as high as a 3.4%. The economy created 156,000 new jobs in August. While a good number, it missed expectations of 180,000.
Moody’s is now expecting “above-potential growth this year and next” in the Eurozone, and has upgraded its growth forecasts for the area’s three largest economies. The upgrades follow recent official figures showing robust growth in the second quarter, with particularly strong consumer spending figures. In contrast, Moody’s said the US economy has been “weaker” than expected since the start of the year, leading it to cut its forecasts for 2017 growth from 2.4% to 2.2%. The ratings agency is also less confident about President Trump’s commitment to ramp up infrastructure investment, cutting its forecast for 2018 growth from 2.5% to 2.3% as a result of “more modest fiscal stimulus than previously assumed”.
The third round of Brexit talks concluded Thursday without decisive progress. The EU hasn’t publicly put a figure on the amount it thinks the UK should pay, but many estimates come up with a net figure of about 60 billion euros. The UK says it won’t pay anything like that.
Fun Story of the Week
For fans of 80’s television, Remington Steele was a classic. A female detective invents a fictional male partner named Remington Steele, to overcome a bias against female detectives. The interesting twist to the show is that one day Remington Steele, played by Pierce Brosnan, shows up for work. Two entrepreneurs faced the same problem with their technology startup. Rather than fight the biases head on, they invented their own partner, Keith Mann. Mr. Mann only interacted by e-mail and they found that vendors were significantly more responsive to Mr. Mann’s inquiries than their own. Laura Holt would be proud.
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 CWM, LLC 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.