Anyone who followed the often-used investment adage, “Sell in May and go away,” is likely pleased with their decision after the markets struggled in the month of August.1
While recent market events may seem dramatic, August is historically the weakest month of the year for U.S. equities.2 By mid-August this year, both the Dow and S&P 500 experienced the greatest sell-offs of 2019. Meanwhile, the 30-year Treasury bond rate dropped to the lowest on record, and the 10-year Treasury yield fell below the two-year rate for the first time since 2007.3
Lately, concerns regarding a potential recession have increased. If you’re questioning your investment portfolio, we’re happy to help ensure it’s designed to weather economic turbulence and aligned with your financial goals. Give us a call to schedule an appointment.
Market analysts point to three factors that have increased the chances of the U.S. falling into decline in the next year or two:4
- The inverted yield curve — When the yield on longer-term Treasuries is lower than the yield on shorter-term Treasuries, it creates an inverted yield curve, which has historically been an indicator of a pending recession.
- Interest rates — While the Federal Reserve recently lowered interest rates, more cuts may be necessary to avoid an earnings recession, which is when there are two consecutive quarters of reduced corporate profitability.
- Trade — President Donald Trump initially announced, and later backed off, more trade tariffs on Chinese imports. However, the constant and prolonged trade uncertainty tends to shake up the markets and could even be the trigger for a recession.
While the August shake-up may be only temporary, some of these underlying factors could be a harbinger for more serious economic issues. For example, the continuing trade spat with China is sinking U.S. companies further when it comes to competing on a global scale. According to the IMD World Competitiveness Center, the U.S. is no longer the world’s most competitive economy. Asian-Pacific countries, particularly Indonesia and Thailand, showed significant improvement in the rankings. Meanwhile, several Middle Eastern nations — namely Saudi Arabia and Qatar — have also made significant progress.5
This year, the U.S. slipped from first to third in global competitiveness, falling behind Singapore and Hong Kong. While the U.S. ranked first in the categories of domestic economic strength and delivering on business needs, it didn’t make the top five in effective government policies on competitiveness or business efficiency.6
Content prepared by Kara Stefan Communications.
1 Troy Segal. Investopedia. May 1, 2019. “Sell in May and Go Away Definition.” https://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp. Accessed Aug. 19, 2019.
2 Jacob Sonenshine. The Street. Aug. 5, 2019. “August Is S&P 500’s Worst Month – Especially When Stocks See Strong Year.” https://www.thestreet.com/markets/august-one-of-s-p-500-worst-month–15045736. Accessed Aug. 19, 2019.
3 Jeremy Herron and Sarah Ponczek. Bloomberg. Aug. 14, 2019. “U.S. Stocks Tumble as Economic Worries Mount: Markets Wrap.” https://www.bloomberg.com/news/articles/2019-08-13/stocks-to-rally-in-asia-on-tariff-delay-relief-markets-wrap?srnd=markets-vp. Accessed Aug. 19, 2019.
4 Anna-Louise Jackson. Acorns. Aug. 14, 2019. “Why August has been such a wild ride for the US stock market.” https://grow.acorns.com/why-the-stock-market-has-been-bumpy-so-far-this-august/. Accessed Aug. 19, 2019.
5 Daniel Moritz-Rabsen. Newsweek. May 30, 2019. “U.S. Economy Slips From First to Third Place in Global Competitiveness Ranking Amid Trump’s Tariffs.” https://www.newsweek.com/us-economy-slips-first-third-place-global-competitiveness-ranking-1439659. Accessed Aug. 19, 2019.
6 IMD. May 2019. “Singapore topples United States as world’s most competitive economy.” https://www.imd.org/news/updates/singapore-topples-united-states-as-worlds-most-competitive-economy/. Accessed Aug. 19, 2019.