Weekly Market Commentary September 5, 2017

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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:

U.S. Economic Data Show Growth, Hiring Strong and August Nonfarm Payrolls

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 upgrades EU growth forecasts, cuts U.S.

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”.

EU and Britain fail to make a breakthrough in Brexit talks

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

Women Entrepreneurs Invent Their Own Remington Steele

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.

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