Weekly Market Commentary August 21, 2017

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While recent economic data releases were mostly positive, major indices retreated under perceptions of increased policy and geopolitical uncertainty. The Fed minutes on Wednesday showed a split committee, leaving the market unsure when the next rate hike will come, and a terror attack in Spain sent stock markets lower. The S&P 500 fell 0.6% and the MSCI ACWI closed 0.2% lower. The Bloomberg BarCap U.S. Aggregate Bond Index rose 0.1%.

Retail Sales were better than expected, at +0.6% (+0.4% forecast), affirming the economy remains on a solid path. Internationally, Japan’s GDP (+4%) crushed expectations. Eurozone GDP expanded by 0.6% in the second quarter and would likely be a key factor in ECB’s next monetary decision.


Key bullet points for the week

  • The Federal Reserve remains split on interest rates with some advocating hikes as the labor market improves while others prefer waiting until inflation increases
  • Risk expectations often spike on terror events and then drift lower almost immediately
  • Q2 revenues and earnings were positive, but stocks that beat generally fell in value


What are we reading?

Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:

Fed minutes: Central Bank Split Over Path of Rate Hikes

Federal Reserve policymakers were split on the outlook for future rate hikes. The committee is struggling to balance concerns over the weak inflation data and the strength in the labor market. One set of members wants more caution in a low-inflation environment while another side is worried about the risk of delaying the decision to hike the rates.

S&P 500 Companies See Worst Price Reaction to Positive EPS Surprises since Q2 2011

More than 90% of the companies in the S&P 500 have reported earnings for the second quarter. About 73% have beat EPS expectations by 6.1%, which is also above the five-year average of 4.1%. However, most of these surprises have been met with a negative price reaction. Investor expectations remain high for corporate performance.

Eurozone Economic Growth Picks Up Pace as Recovery Spreads

Growth in the Eurozone picked up to its fastest pace since 2011 in the second quarter, with GDP over the past 12 months rising by 2.2% on the back of significantly improving domestic demand. Exports also continue to grow despite uncertainty among trade partners and an appreciating euro.



Fun Story of the Week

Alaska’s War on Offensive License Plates

Alaskans love to customize their vehicle license plates. According to the attached article, roughly 11 percent of the registered vehicles have personalized plates. So far this year, 173 submissions have been rejected. “KIDNPR” was disallowed. So was a request for 80085, which paid homage to a classic middle school boy’s calculator trick. Some of the rejections are difficult to discern. For example, “HZNHRZ” didn’t make the cut and no reason was provided as to why. So, if you are talented at ferreting out the meaning of strange acronyms, the DMV may be interested in your services.




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