Kai W. Hong, CFA
Managing Partner & Chief Investment Strategist
Given all of the macro and political drama of the last several months, the month of August was relatively quiet. Of course there was posturing around trade deals, budget/debt-ceiling negotiations, and administration-created controversy (this time around protests in Charlottesville), but volatility remained low and US 10 year yields declined, reflecting a sanguine if not jaded view of things. While consumer spending and factory activity showed some softening, corporate results continued to be strong and broader macroeconomic growth was steady if unspectacular. US market indexes hit record highs, but the gains were being driven by a more and more narrow segment of mega cap leaders. Low inflation readings clouded the outlook for further US Fed action, but the consensus view was still one of balance sheet reduction and an additional rate hike before year end (although there appeared to be more dissention than normal on this point). The tension between the US and North Korea remained, but the incalculable cost of any direct conflict made it difficult to price into the markets.
The Russell 3000 Index finished the month at +0.2%. While the result was modest, it was notably the tenth month in a row of positive performance for the broad US market. Sector performance was quite mixed as Technology and Health Care were strongly positive while Energy, Consumer Discretionary, and Consumer Staples were correspondingly negative. US small cap stocks continued to underperform large caps with the Russell 2000 Index returning -1.3% versus the Russell 1000 Index returning +0.3%. Outside of the US, the developed market MSCI World ex USA Index was essentially flat at -0.0% while the developing markets added to their strong performance for the year with the MSCI Emerging Markets Index returning +2.2%.