Monday, August 13, 2018

Week In Review | Aug 13, 2018

Mark K. Nickel, CFP, CIO
Author position
Chief Investment Officer
Hilliard Lyons’ Investment Strategy & Research team is dedicated to supporting you and your Wealth Advisor. We provide investment guidance and help you separate meaningful news from idle noise via timely market commentary.

Stocks Take a Dip

  • A selloff on Friday pushed global large-cap indexes into negative territory for the week. The S&P 500 posted its first weekly decline since late June. Tech and Consumer Discretionary were strong, along with small-caps stocks; both were resumptions of YTD trends.
  • The Hilliard Lyons View: Consumer price data on Friday indicated a pickup in inflation, due in part to shelter costs (housing). The fear is that higher inflation could compel additional Fed rate hikes. Broadly, we are not surprised to see profit taking as a strong Q2 earnings season nears completion. This is particularly the case given a breakout for the USD last week alongside an emerging panic in Turkey Q2. With the Q2 cycle of reports nearly complete, EPS for the S&P 500 is set to grow nearly 25%.

We are not surprised to see profit taking as a strong Q2 earnings season nears completion.

Diverging Tenor to Global Flashpoints

  • The US levied (new) sanctions on Russia and Turkey (a NATO ally) last week. Trade developments with China continued along the path of tit-for-tat tariffs. That said, Beijing removed US oil from a list of goods for possible tariffs in a move that we see as a small ‘win’ for US interests. Sentiment toward progress on NAFTA revisions seems to be rising.
  • The Hilliard Lyons View: Devolving conditions in Turkey seemed to be the biggest weight on global sentiment last week, partially under a narrative that (simplistically) a crashing lira is negative for the European financial system. We are not particularly concerned by Russia or Turkey, as we view the relationships as more strategic than economic. China remains a disconcerting near-term issue, but the path of developments is generally following the volatile path we expect pre- mid-term elections.

Interest Rates

  • Treasury rates fell across the curve last week, and the spread between 2-yr and 10-yr Treasury yields tightened by 4bps to 27bps (0.27%). Investors with fixed income allocations to Treasuries did well last week, with a strong week for the Barclays US Aggregate index.
  • The Hilliard Lyons View: Weeks like Aug 6-10 highlight the value of diversification.

A Look Ahead

  • The Hilliard Lyons View: Consumer trends may be of note this week with Retail Sales for July set to be announced mid-week, along with earnings reports from a handful of retailers, including: Home Depot, Macy’s, and Wal-Mart. Select housing data and the index of Leading Economic Indicators for July otherwise highlight a modest week of economic data. Talks between the US and Mexico are set to resume in D.C., although Turkey seems primed to remain the primary global focal point.

Key Definitions

  • S&P 500 – index comprised of ~500 large-cap US equities listed on the NYSE or NASDAQ.
  • Russell 2000 Index – index comprised of ~2000 small-cap US companies.
  • MSCI EAFE – index comprised of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East. This index does not include US or Canadian companies.
  • MSCI EM - index comprised of large and mid-cap securities across 24 emerging markets.
  • Bclys US Agg – (Bloomberg Barclays US Aggregate Total Return Bond Index, Unhedged) total return bond index comprised of taxable, dollar-denominated debt.
  • Oil--WTI – represents West Texas Intermediate Crude Oil, a grade of light crude oil used as the underlying commodity in many indices and futures contracts.
  • Oil--Brent – represents Brent Crude Oil, a grade of light crude from the North Sea used as a global benchmark price.
  • IG Spread – (Investment Grade Spread, Bloomberg Barclays USD Liquid IG Corp Average OAS) represents the yield difference between an index of investment-grade rated bonds and a spot Treasury bond curve.
  • HY Spread – (High Yield Spread, Bloomberg Barclays US Corporate HY Average OAS) represents the yield difference between an index of below investment-grade rated bonds and a spot Treasury bond curve.

Important Disclosures

  • Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.
  • Past performance is not a guarantee of future results.
  • Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.
  • All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversification and asset allocation do not guarantee a profit or guarantee against a loss.
  • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.)