Market Update: Thursday, August 30, 2018

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Daily Insights

  • LPL Research on CNBC. In case you missed it, LPL Research Chief Investment Strategist John Lynch was on CNBC’s Squawk Box this morning, talking about the health of the U.S. economy. View the interview here.

  • More fresh records. The S&P 500 Index closed at a new all-time high for the fourth consecutive day yesterday, the longest such streak since six in a row to start 2018. The all-time record for consecutive new highs was 12 in a row in 1929*, while in more recent times there was a streak of 11 in 1964. Interestingly, this is the first time the month of August has seen four consecutive new highs since 1987. New highs in August are somewhat rare, as since 1950, no month has “fewer” new highs than August.

  • Canada may join NAFTA 2.0 on Friday. Our read of the tea leaves suggests the U.S. and Canada may be able to iron out their few remaining differences over the next 36 hours and secure a “NAFTA 2.0” following the U.S.-Mexico deal reached earlier this week. Whether a Canadian deal comes Friday or not (key decision makers are continuing marathon talks today), a China deal remains the primary objective. To that end, alignment with our other major trading partners may help put additional pressure on China and increase the odds of a deal later this year, likely after the U.S. midterm elections in November.

  • Consumer spending growth strongest since 2014. Consumer spending grew 0.4% month over month in July, boosting its year-over-year growth to 5.2%, the strongest pace since October 2014. Today’s strong consumer spending data indicates that U.S. consumers remain in great shape amid a solid macroeconomic backdrop and fiscal stimulus. Consumer spending accounts for about 70% of economic output, so the data also signals another strong quarter of gross domestic product growth. Personal income rose 0.3% in the month, reducing year-over-year growth to 4.7% (down from 4.8% in June) and reflecting tepid wage growth.

  • Core PCE growth reaches Fed’s target. Core personal consumption expenditures (excluding food and energy), the Federal Reserve’s (Fed’s) preferred inflation gauge, rose 2.0% year over year in July, matching the Fed’s target for the first time since 2012. Even so, the Fed has emphasized the “symmetric” nature of the core PCE target to reassure investors that it will consider other long-term indicators of price and wage growth when evaluating pricing pressures. To us, inflation gauges have yet to show signs of excesses in the economy, especially as wage growth has remained muted. Since wages can represent up to 70% of total business costs, it’s difficult to have a sustainable pricing threat without the participation of wages.

  • Looking for stabilization. We will be closely watching China’s official manufacturing Purchasing Managers’ Index (PMI), due out later today, for signs of stabilization in the Chinese economy. Bloomberg pegs consensus at a still expansionary 51.0, slightly below the prior month (51.2), the lowest level in seven months, and the second lowest reading in two years. Slower growth in China is not new news, but it is particularly sensitive given the ongoing trade dispute. A solid manufacturing survey could help ease fears of a more pronounced slowdown following a series of Chinese data below expectations in recent months.

  • S&P 500 avoids summer swoon. The S&P 500’s incredible summer rally continues, as U.S. stocks are on track to post their fifth straight monthly gain. The S&P 500 has also performed surprisingly strong this month, as its 3.5% gain is its second-biggest rally in August since 2000 (with two trading sessions left). On the LPL Research blog, due out later today, we highlight the S&P 500’s historical performance after closing up each month from April until August.

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Click Here for our detailed Weekly Economic Calendar

Thursday

  • Personal Income (Jul)
  • Personal Spending (Jul)
  • Germany: CPI (Aug)
  • Eurozone: Consumer Confidence (Aug)
  • Japan: Jobless Rate (Jul)
  • Japan: Tokyo CPI (Aug)
  • Japan: Industrial Production (Jul)
  • China: Mfg. & Non-Mfg. PMI (Aug)

Friday

 

IMPORTANT DISCLOSURES

*The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1929 incorporates the performance of the predecessor index, the S&P 90.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

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All company names noted herein are for educational purposes only and not an indication of trading intent or a solitication of their products or services. LPL Financial doesn’t provide research on individual equities.

All performance referenced is historical and is no guarantee of future results.

This research material has been prepared by LPL Financial LLC.

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Index data obtained via FactSet

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