U.S. equities were positive in August as strong earnings and better-than-expected economic growth helped move stocks higher. Overseas markets were slightly negative and continue to lag U.S. markets this year. Bond yields will continue to bounce around as stronger economic data keeps the Fed on course to continue raising rates. My stance remains to stay away from interest rate sensitive and long-dated bonds and for keeping maturities/duration short.
Our economy continues to exhibit healthy growth as 2nd quarter GDP was revised upward to 4.2%. The current quarter looks to be tracking near 3.5%. The most recent consumer confidence number came in at its highest level since October 2000.
Employment growth has been robust with payrolls averaging just over 200,000 net new jobs per month in 2018. The latest unemployment rate was at 3.9% and showed that many workers are re-entering the workforce. The manufacturing sector has seen above-trend gains.
Market volatility likely will continue as the market seeks to strike a balance between the stronger economic growth we’re experiencing and the unknown effects of potential higher interest rates and inflation. Trade issues that should have been addressed years ago add to market disruption. Inflation remains under control at near 2.0%, which is at the Fed’s target.
Even as the markets face heightened volatility, fundamentals for U.S. companies remain strong. Equity valuations remain reasonable at 18x this year’s earnings. Balance sheets are strong, dividends are increasing, and earnings growth is at an all-time high. As long as these fundamentals remain in place, equities should move higher with pullbacks being short-lived.
“Parker Personals”: The long wait is over; college football season has begun! As a player, it started for me September 5, 1981 as we (LSU) kicked off the college football season on national TV against the Bear Bryant coached Alabama Crimson Tide. The game-week hype was incredible and although I came to LSU highly recruited, I had never played in front of more than 3000 or so fans. As my teammates and I walked out of the tunnel onto the field, it wasn’t so much the 80,000 fans, or the ABC TV camera that seemed to be staring me down, or even hearing the deafening sound of the crowd……but it was the sense of actually “feeling” the roar of the 80,000 fans that gave the term “weak-kneed” a whole new meaning to me. Though frightening at first, it soon transformed into a gripping and energetic experience for the rest of my athletic career. Now, as they say down in Louisiana…..Geaux Tigers!
Best Regards, Clay
Market Commentary – September 4, 2018
