August opens with a face plant

The market has started August on on a disappointing note. It fell over 3% this past week; it’s worst week since January.

August tends to be a rough month, and following recent new highs in the stock market, the poor start is not a surprise. Immediate “causes” cited for the fall were disappointment in the framing of the FED chairman’s remarks accompanying the quarter point drop in the federal funds rate. Many argue the drop was unnecessary and gives up ammo that will be needed in the next recession. But other investors had a tantrum that Chairman Powell did not signal that this drop of a quarter percent is not the first of several.

The market’s fall was exacerbated on Thursday afternoon when Pres. Trump tweeted his decision to put more tariffs on Chinese imports come Sept 1st.  Count me an agnostic on the bad effects of tariffs on an economy the size of ours. China is hurting economically and so is much of the world, but the American economy still appears reasonably strong.

Then, too, seasonal effects play into August (and even September) being challenging months for the market.

How far the market will fall is unknown, but the US economy is still the engine driving the global economy. The US market also contains most of the world’s most profitable companies.  In a low-return global environment, it is hard to see how the US market will become unattractive to global investors.

In addition, our relatively higher interest rates are drawing much global capital, since many developed nations are sporting negative interest rates in a weak attempt to stimulate their own national growth. For these foreign lands, setting rates below zero will not, I believe, engender  growth and investment. Only policies that incentivize growth – like lower taxes, less regulation, and ceasing the demonization of success – will do that.

Blessings to you all

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