August gave us hurricanes and missile launches, but the streak of positive returns for the S&P 500 index continued. This large cap index was up a meager 0.31% while most small, mid, and international equities were actually negative for the month.1 Euphoria in the markets was absent, so the nervous money went into treasuries. The 10 Year Treasury rate dropped from 2.30% down to 2.12% as a result2, helping the Barclays Aggregate Bond Index jump 0.93% in August.
We had second quarter GDP revised to 3%, up from 2.6% and unemployment still hovers near decade lows at 4.4%.3 However, inflation has been coming in below the Fed target. Some wonder if the Fed will have enough reason to make a third rate increase this year with all the conflicting evidence regarding the economy’s health.
This will all be figured out in time. What is really weighing on our hearts and minds right now is the onslaught of hurricanes hitting the southern states. Gas prices have risen particularly since roughly one third of the US refineries are located in Texas and Louisiana. The cleanup of Hurricane Harvey in Houston and adjoining areas are still ongoing, but is expected to be one of the most expensive hurricanes in history. The total costs haven’t been quantified yet and we already have Hurricane Irma anticipated to hit southern Florida in just a few days with potentially even stronger forces.
From an investing perspective, these types of events can affect stocks in a variety of ways. Some insurance company stocks will suffer from the high flood related claims coming down the chute. Some oil stocks will drop if their production capability is hindered, while others will cash in on the higher energy prices. Home improvement stocks have already seen a jump in anticipation of increased revenue.
Our primary concern right now is for the people in the path of these hurricanes. This is obviously a stressful time for those living, or who have friends and family living, in the Texas, Louisiana, and Florida areas. We hope everyone remains safe and out of harm’s way.
1 Thomson Financial
3 PMC Weekly Market Review, September 1, 2017
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