Market Digest
9.4.19
A Volatile August Showed Stocks Moving in Lockstep
S&P 500 Sector movement as of Aug 27 2019
Equity markets in August were notable for their volatile swings, especially as it related to shifting sentiment on trade. The VIX volatility index reached a high of 24.59 on August 5th and closed out the month at 18.98. As reference, the highest point reached all year was on January 3rd, when it touched 25.45.

What was remarkable about last month however, was just how often seemingly unrelated areas of the market traded in the same direction.

According to data from Dow Jones, all eleven of the S&P 500's sectors either rose or fell together eleven times during August. As seen in the chart above, that was highest frequency rate since January 2016. But the analysts at Dow Jones looked beyond the S&P 500 and found oil prices, international equities and bond yields all traded in the same direction as US stocks seven times last month.

What does that tell us? When different types of investments move in the same direction, it actually contributes to volatility and could mean fewer places to "hide" if there is a sudden downturn. Uncertainty about tariffs and a prolonged trade war helped fuel the large market swings we saw in August. And with increasingly bitter rhetoric and major differences on several issues, neither China nor President Trump appear likely to blink any time soon.

Furthermore, investors should consider how crowded trades could impact portfolios if the markets turn south. We've discussed a number of times how the FAANG 6 have dominated market returns in recent years. New data from Cliffwater shows the five year total return performance of the S&P 500 was 73%. But if you exclude Facebook, Apple, Amazon, Netflix, Google and Microsoft, the five year total return was -12%! With so many investors owning those few companies, if (when) momentum flips, an unwinding of those positions can swiftly drag down markets. That is exactly what we experienced in December of last year.

What can investors do? The number one way to insulate yourself from the type of lockstep movements we saw in August, is to fully diversify your portfolio by including assets that are less likely to move in the same direction as traditional stocks and bonds. This includes alternative investments like hedged equity, real assets, direct lending, BDCs and high yield bonds. After that, it's important to remember that your portfolio's asset allocation has been structured for the long term . Resist the urge to sell when markets turn south. Economies cycle through expansionary and recessionary periods, but your investment portfolio should be built to weather different environments so long as you are willing to look past short term fluctuations.

With trade uncertainty, a slowdown in global growth, low inflation, geopolitical risks, monetary policy changes, Brexit and a potentially rancorous US election campaign, it looks as if volatility is here to stay. Having the right asset allocation and investment policy in place can help. If you're interested in learning how New Market Wealth is constructing resilient portfolios for today's environment, give us a call.
New Market Wealth In the News
Yahoo! Finance's On the Move
Last week our Director of Portfolio Management, Ted Sweeney, CFA, CAIA shared his insights on the volatility that the market has been experiencing this year with Yahoo! Finance 's On the Move.

Click the link below to watch his segment:
Market Update
Equity Index Returns YTD through Aug 30 2019
Although hopes for progress on trade talks with China already appear to have faded, last week they pushed US equities to their best week in nearly three months. Early in the week, President Trump asserted that the Chinese wanted to make a deal, and equities rose. Although that rally proved short-lived, by mid week, the Chinese explained that the two sides remained in "effective communication," and stocks rallied again. Month-end rebalancing from large institutions also contributed to the gains.
Economic News
Personal Income and Outlays July 2019
Consumer Spending

Last week's economic data was mixed as evidenced by the two exhibits shown here. Last Friday, the Bureau of Economic Analysis issued a report that presented two dominant themes: consumer spending is very strong and inflation is very flat.

Personal spending rose 0.6% in the month of July, its best pace in three months. The consumer, benefiting from a strong jobs market, is spending aggressively even though wage growth continues to lag. Income growth in July was lower than expected and personal consumption expenditures (the Fed's preferred measure of inflation) posted an as-expected 0.2% percent monthly gain.
Michigan Survey Consumer Sentiment Aug 2019
Consumer Sentiment

In contrast to the positive report showing strong consumer spending in July, the University of Michigan’s consumer sentiment index for August, brought a warning that consumers might be tightening their belts. With a reading of 89.8 for August, the index hit its lowest point since October 2016.

The report cites consumer apprehension over rising tariffs as the primary culprit, with the survey’s chief economist noting that the “data indicate that the erosion of consumer confidence due to tariff policies is now well underway.”


The Watercooler
Sony Reon Pocket
Wearable Tech:
Personal Air Conditioner

After two years of research and development, Sony has introduced the Reon Pocket which uses thermoelectric cooling to lower your body temperature on demand.

The Bluetooth device is used in conjunction with an app and a special undershirt that has a back pocket at the base of the neck. Unlike an actual air conditioner, the Reon Pocket has a very low profile and doesn't make any noise so it can be worn discretely under a suit. The company claims it can lower the wearer's body temperature by 23 degrees Fahrenheit or warm a user by about 14 degrees Fahrenheit.

In just one week the Reon Pocket reached its crowdfunding goal and is currently sold out for pre-orders. So far, the device is only available in Japan. Sony plans to launch Reon Pocket in time for the 2020 Summer Olympics in Tokyo.
New Market Wealth Management offers the personalization of a boutique wealth manager coupled with the knowledge and resources of a large firm. Through our strategic partnership with Cliffwater LLC , a leading institutional research and advisory firm, and a minority owner, New Market Wealth Management specializes in an endowment style of alternative investment previously afforded to only large institutions.
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