Rocky Road

‌

MARKET COMMENTARY FOR WEEK OF August 19, 2019

View as Webpage

SHARE WITH A FRIEND

Currently Obsessed With...The Vix

The Vix , also called the fear index, is a measure of future stock market volatility. With all of the volatility last week, which we will discuss in detail today, we took a look at what the Vix had to say about it.

From 2013-2018, market volatility has been in line or lower than the 30-year average of the Vix’s history. So far this year we have had below-average market volatility. Over the last nearly 100 years of the financial markets, episodes of volatility of 5% or more have occurred on average three times a year. We have only had 2 such episodes this year.

Even though stocks have been volatile this past week, year to date the market is up 17% (including dividends). The biggest risk to long term investors is pulling out of the market or switching up their investment strategy in response to short-term bouts of volatility.

#RockyRoad

We wish we were talking about ice cream but no such luck. Stocks finished last week lower for the third straight week in a row and the volatility gave us whiplash. The Dow was down -1.5%, the S&P 500 dropped -1% and the NASDAQ slipped -0.8%.

LET'S BE CLEAR...

Stocks delivered negative returns for the third straight week in a row last week...we’ll get to all of that in a sec. What was really significant was the volatility - how much the market moved up and down throughout the week. The S&P 500 was down by 2.9% and then swung back and was up 1.5%, and then was back down again. The road was anything but smooth. In fact, both stocks and bond yields made major moves last week. Let’s review the moves and all of the reasons why in rapid fire:

Trade uncertainty pushed stocks down 2.9%. - Down

The White House announced that the new tariffs that were set to go into effect in September would be delayed until December– Up

Disappointing German and Chinese economic data released – Down

10-year Treasury rates fell below 2-year Treasury rates for the first time since 2007, briefly inverting that section of the yield curve (an historical predictor of recession) - Down

30-year Treasury rates dipped to a record low close to 2% - Down

The Good News:

Though the volatility is real. There was good news last week:

July retail sales report was released and were up 0.7% from June. This is an increase for the fifth straight month in a row.

Consumer spending has been a huge driver of our current bull market, helping to push stocks higher and it’s continuing.

The labor market is strong and wage growth is steady. This has translated into higher household net worth which Wall Street nerds believe is a good sign to continue increased consumer spending and, ultimately, a good foundation to push stock prices up.