Presented by Rich Tegge

World markets resilient in August

Global markets ended August slightly positive, as early gains were partially offset by volatility toward month-end. U.S. equity markets posted small increases in August. The S&P 500 Index closed the period up 0.14 percent, the Dow Jones Industrial Average was up 0.26 percent, and the Nasdaq led the way with a gain of 1.18 percent.

The positive market performance was supported by better-than-expected corporate earnings. With 98 percent of S&P 500 companies reporting second-quarter results by the end of August, 71 percent had beaten earnings expectations and 53 percent had reported sales above expectations. The overall blended earnings decline of 3.2 percent was disappointing, though it was significantly better than the 5.5-percent decline anticipated as of the end of June or the 3.8-percent decline forecast at the end of July. Unfortunately, only 5 of 10 sectors showed earnings growth for the quarter. This weakness should be monitored, as earnings drive market performance in the long run and continued declines could pressure markets going forward.

Technicals stayed positive in August. All three major U.S. indices finished the period above their 200-day moving averages, and all three remained comfortably above the trend line throughout the month. Positive technical factors help increase confidence in continued equity market performance.

Developed international markets also showed small gains, with the MSCI EAFE Index up 0.07 percent for the month. The index dipped below its 200-day moving average at the beginning of August but quickly recovered to end the period well above the average level, suggesting that technical factors remain supportive as well. Developed market performance was driven by slow but real growth in the European Union (EU), as well as better-than-expected performance by the British economy in the aftermath of the Brexit vote.

Emerging markets did best of all, as the MSCI Emerging Markets Index ended August with a 2.52-percent gain. The four largest emerging market countries—Brazil, Russia, India, and China—all posted positive returns, which led to the sizeable uptick for the index.

Technicals also continued positive, as the emerging markets index stayed above its 200-day moving average support level throughout the month. But the strong August performance notwithstanding, risks remain, particularly because of potential Federal Reserve (Fed) action, which could lead to a stronger dollar and therefore have a negative impact on this volatile sector.

Fixed income had mixed results in August. The Barclays Capital Aggregate Bond Index ended the month down 0.11 percent, in large part due to rising interest rates. The yield on the 10-year Treasury increased from 1.46 percent at the beginning of the period to 1.58 percent by month-end.

Much of the rise in rates was engendered by increasing confidence in the U.S. economy— supported by positive comments from Fed Chair Janet Yellen at the annual Jackson Hole Economics Policy Symposium. The Barclays Capital U.S. Corporate High Yield index, which is less influenced by interest rates, ended August with a positive 2.09-percent return, driven by a rally in lower-rated market investments.


Source: U.S. Census Bureau/Haver Analytics

International risks were muted but remain

After a string of headline-grabbing events earlier in the summer, international risks were subdued in August. Although uncertainty remains—especially in Europe and the Middle East because of the ongoing refugee crisis and fallout from the Brexit vote—there were no major market-moving events from overseas during the month.

Despite the general tranquility, however, a handful of developments could impact U.S. markets going forward. The EU’s ruling that Apple owes it roughly $14 billion in back taxes could lead to more friction with the U.S. In addition, China remains a concern, as it continues to hold its currency near four-year lows against the dollar, even as that nation faces sizeable headwinds to growth in the second half of 2016.

All eyes on central banks

In the face of global risks, central banks have been active. Janet Yellen’s speech at the annual Jackson Hole conference gave a positive take on the U.S. economy, and the market reacted to her speech by increasing the odds for at least one rate hike in 2016. Any action taken by the Fed will be felt by global markets; consequently, the upcoming Fed meetings will be closely watched for changes.

Even as the Fed mulls over raising rates, the European Central Bank and Bank of Japan continue to increase their asset-purchasing programs. This policy divergence could have a negative effect on domestic and international markets.

Uncertainty remains heading into the fall

Although August was quite calm, September may show more activity, as the approach of fall brings a set of potentially destabilizing events. Risks to monitor around the globe include the ongoing Brexit process, uncertainty surrounding China’s growth, and continuing conflict in Syria. Here in the U.S., the possibility of future rate hikes, the upcoming presidential election, and the lack of quality earnings growth could increase market volatility. All of these risks—both foreign and domestic—could become causes for concern.

Nevertheless, despite the real risks, the fundamentals of the U.S. economy are healthy, and any potential volatility will be cushioned by that reality. Over time, such short-term risks have always passed. As always, a well-diversified portfolio, combined with a perspective that maintains the long view, presents the best means for accomplishing financial goals, even in the face of short-lived volatility.


All information according to Bloomberg, unless stated otherwise.


Rich Tegge is a financial advisor located at Wealth Strategy Group 300 S. Front Street Ste C, Marquette MI  49855. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 906-228-3696 or at
Authored by the Investment Research team at Commonwealth Financial Network. © 2016 Commonwealth Financial Network ®
Disclosures: All information according to Bloomberg, unless otherwise stated. Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Barclays Capital Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Barclays Capital Municipal Bond Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

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