US Economy: Signs of deceleration.
US manufacturing activity appears to be contracting, as the ISM US Purchasing Managers Index fell unexpectedly to 49.1 for August 2019, with results under 50 indicating general contraction. Additionally, the Labor Dept. reported the US added 500,000 fewer jobs than initially estimated for the 12 months ended March 2019.
US Stocks: Small caps sink.
Small-cap equities are underperforming, having lost nearly 5% in August, in what was a down month for stocks in general. Since they operate mostly in the US, one would expect small-cap stocks to outperform given the US-China trade war. However, concern over a US economic slowdown is making small stocks less appealing.
Foreign Stocks: Brexit by November?
Global economic uncertainty buffeted foreign markets. Boris Johnson, the newly elected British Prime Minister, announced that the UK will exit the EU by October 31 — with or without a deal with the Eurozone. If no deal, analysts expect the UK to lapse into recession.
Fixed Income: Argentina near default.
US high-quality bonds continued to benefit from falling interest rates. In Argentina, a surprise election effectively ousted market-friendly President Macri, amid falling economic growth and 55% inflation. While it’s uncertain if the new government will honor foreign-debt payments, the need for new capital may force their hand.
Real Assets: Gold shines.
REITs and infrastructure equities posted positive returns, partly due to falling interest rates. Most commodities were hurt by flagging global economic growth, with the exception of gold. The Midas metal gained 7.5% in August, a nearly seven-year high, on its safe-haven status.
Alternatives: Managed futures bet on trends.
Managed futures managers applying trend-following strategies benefited from the persistent fall in US interest rates/rise in bond prices, leading to outperformance. While positive so far in 2019, over the last few years these strategies have struggled in the absence of persistent trends.
Equities Total Return
|U.S. Large Cap||(1.6%)||18.3%||2.9%|
|U.S. Small Cap||(4.9%)||11.8%||(12.9%)|
Fixed Income Total Return
|U.S. Agg. Bond||2.6%||9.1%||10.2%|
|U.S. High Yield||0.4%||11.1%||6.6%|
|Munis Broad Mkt||1.6%||7.9%||8.8%|
Non-Traditional Assets Total Return
|Overall HF Market||0.2%||5.3%||(1.3%)|
|Gold Spot $/OZ||$1520||$1313||$1201|
|U.S. Dollar Index||91.7||91.1||90.0|