Market Commentary 8/17/18

U.S. stocks were lifted in the later part of the week after a rough mid-week trading session. Factors that helped include strong quarterly sales from retailers and news of resumed talks with China on tariff negotiations. Consumer spending is up, encouraged by a strong domestic economy, rising wages, and improved employment opportunities. Business confidence remains high and the U.S. economy continues to remain unaffected by the respective slowdowns in the Chinese and European economies.

However, even in the face of a robust U.S. economy and powerful stock market rally, bond yields remain attractive with the 10-year Treasury note trading at 2.86% late day Friday. Treasury yields have been held down by the fear of a global slowdown due to trade tensions, the potential recessionary “flashing yellow light” of the flattening yield curve, the drop in copper and other commodities prices, and a poor sentiment reading from the manufacturers’ survey. Bonds were also helped further by the flight to safety in response to political and economic turmoil out of Turkey which spurred fears of contagion throughout developing economies.

Even with the many problems in the world today which could push bond yields lower, we continue to remain cautious on interest rates going lower and are biased toward locking in interest rates given the current state of our domestic economy and the likely prospects of continued short-term interest rates hikes anticipated by the Fed in the coming months.