Fidelity Bank - Wealth Management
August 2019 Market Review
William J. Fennie III
Global equities retreated in August as volatility shot higher and global interest rates sank as recessionary anxieties spooked markets. Trade war concerns, no-deal Brexit, and an inverted US Treasury curve helped stoke fears, greater volatility, and a flight to safety. The Federal Reserve’s 25 basis point rate cut in July did nothing to soothe markets, instead helped ignite some of the volatility that played out in August. During the month, US Stocks lost 1.58%. In the rush to safety, the Bloomberg Barclays US Aggregate Bond index jumped 2.59% in August. This was the largest monthly return for the index since December 2008. In context of the last 30 years, this was a more than a 2 standard deviation event.
Equity Markets labored in August. An inverted yield curve and global recession fears weighed on equities across the globe. August’s flight to safety caused all but three of the Global Industry Classification Standard (GICS) sectors to end the month in negative territory. Utilities, Real Estate, and Consumer Staples led the way, up 5.16%, 4.87%, and 2.14%, respectively. Energy and Financials were by far the laggards, falling 8.13% and 4.85% in August, respectively. Global trade fears sank energy prices and the inverted yield curve lowered expectations for future bank earnings.
Dollar strength detracted from returns for US investors in both Developed Markets and Emerging Markets. The Dollar Index, which measures the US Dollar against Developed Market currencies, strengthened by about 0.41% in August. The MSCI EAFE index lost 2.42% in local currency terms, but lost 2.59% in US Dollar terms. The MSCI Emerging Market Currency Index weakened by 3.31% vs. the US Dollar in August. The MSCI Emerging Markets index lost 2.53 % in local currency, but the conversion to US Dollars increased that loss to 4.88%. Trade war consternation continues to be the market moving headline.
The Federal Reserve’s first rate cut in 10 years drove angst in markets in August. Decelerating growth, low inflation and an inverted yield left investors in search of a safe haven. As a result, Treasuries rose 3.40% as yields fell across almost every maturity and the US Dollar gained strength, especially against Emerging Market Currencies. Currently, market participants are predicting a cut of at least 25 basis points at the September Fed meeting.
High Yield Bonds rallied 0.40% in August. High Yield spread to 10 Year Treasury bonds widen by 38 basis points to end the month at 4.22%. High Yield bonds yielded about 5.72% at the end of August. Investment Grade Corporates rose 3.14% in August. Year-to-date Investment Grade Corporates and High Yield Corporates are up 13.94% and 11.00%, respectively.
In international fixed income, German Bunds dove deeper into negative interest rate territory. The 10-year German Bund closed the month at record low yield of negative 70 basis points. US dollar strength detracted from Emerging Markets Debt in August, falling 2.64%. Year-to-date Emerging Markets Debt is up 6.83% and currently yields about 6.45%
The Bloomberg Commodity Index lost 1.35% in August. Escalating trade tensions and economic uncertainty ushered commodities lower. Oil lost nearly 6% in August. Gasoline prices fell by 15.78%. Economic uncertainty and expectation of lower rates sent investors to safe traditional havens. Gold rose 6.37%; platinum jumped 6.18%; silver rocketed 11.81%. Real estate gained 4.14% and is now up 26.12% year-to-date.
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August 2019 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data as of 8/31/2019. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large‐cap segment of the U.S. equities market.