Kai W. Hong, CFA
Managing Director & Chief Investment Strategist
August was a period of relative calm as competing macro considerations left investors wondering how to position portfolios. Volatility and trading volumes were unusually low, and there appeared to be few catalysts to drive either bullish or bearish sentiment. Q2 US GDP came in at a modest 1.2% as robust consumer spending was offset by retrenchment in business investment. This followed a downwardly revised Q1 GDP reading of 0.8%. While this made the possibility of near-term tightening by the US Fed less likely, growing support within the Fed for a rate increase combined with declining forward growth expectations and elevated valuations served to restrain broad-based buying. Concerns over Brexit continued to recede into the background as most observers expected the impacts of the move to be modest in the short-term. On the positive side, US job creation remained strong, and hourly wages rose.
Although many US market indexes were able to post record highs during the month, market performance overall was fairly muted with the Russell 3000 Index finishing at +0.3%. Notably, there were no days during the month when the index was up or down by more than 1%. At the sector level, Financials and Technology led while Utilities and Health Care lagged. US small cap stocks continued their recent leadership as the Russell 2000 Index returned +1.8%. Outside of the US, market performance was mixed. The developed market MSCI World ex USA Index returned +0.1% while the developing market MSCI Emerging Markets Index returned +2.5%.