While investors kept tariffs and trade disputes in mind in August, a new earnings season provided Wall Street with a lift. Blue chips especially benefited: the Dow Jones Industrial Average rose 4.71% for the month. Broadly speaking, strong corporate profits and domestic economic data gladdened the bulls, even as question marks about global commerce flashed.1


Was the federal government about to enlarge tariffs on Chinese imports or relax them? The month ended with conflicting signals. In late July, Bloomberg reported that the Trump administration was considering hiking the 10% import taxes, which it planned to impose on $200 billion of Chinese-made goods this fall, to 25%. Yet as the month ended, representatives of the offices of Secretary of State Steven Mnuchin and Chinese Vice Premier Liu He were trying to rekindle trade negotiations, with the possibility of dropping these proposed tariffs.2
Two other developments concerning tariffs made headlines. On July 1, Canada acted to impose a 25% import tax on American steel products and a 10% import tax on assorted U.S. consumer, food, and agriculture exports coming through its borders. On July 25, President Trump and European Commission President Jean-Claude Junker agreed to lower the respective industrial tariffs the U.S. and E.U. had announced and postpone others (such as the planned 25% U.S. tax on European-built autos) pending further talks.3,4
A new report from the Department of Labor showed a net June gain of 213,000 jobs. That topped the 195,000 projected by Bloomberg’s consensus forecast. Headline unemployment increased to 4.0% from 3.8% in June, while the U-6 rate, counting the underemployed, rose 0.2% to 7.8%, but those changes reflected the growth in the labor force participation rate. Wages were rising 2.7% a year at the end of the second quarter.5
Consumer costs, however, were increasing at 2.9% per year, according to the latest Consumer Price Index. That was the highest inflation rate seen since February 2012. Well beneath the headline number, the core CPI (which removes food and fuel prices) was up just 2.3%, annually, through June. The large difference between the two CPIs reflects the impact of a 30.8% year-over-year rise in the price of fuel oil and a 24.3% annualized gain for the cost of gasoline. (The June Producer Price Index showed yearly wholesale inflation running at 3.4%.)6,7
The Institute for Supply Management’s purchasing manager indices looked very strong as spring gave way to summer. In June, ISM’s non-manufacturing PMI achieved a mark of 59.1, improving 0.5 points. The June and July readings for ISM’s manufacturing PMI were also excellent: 60.2, then 58.1. Federal government reports showed durable goods orders increasing 1.0% in June; industrial output, 0.6%; manufacturing output, 0.8%.6,8
On Main Street, consumer confidence held up even as households thought about the potential impact of tariffs on the economy. The Conference Board’s index rose 0.3 points in July to 127.4, and the University of Michigan’s barometer progressed from 97.1 in its preliminary July edition to a final July mark of 97.9.6
Fresh Department of Commerce data showed consumers spending at a healthy rate at the end of spring. Personal spending was up 0.4% in June, with overall retail sales advancing 0.5%; all this was helped by a gain of 0.4% for personal incomes.6


China announced moves last month to try and ward off the potential economic impact of U.S. tariffs and to stimulate an economy that had slowed slightly to 6.7% growth during the second quarter. Its central bank poured the equivalent of $74 billion U.S. into its financial system in June, a record. Its government announced a new round of bonds to facilitate localized upgrades in infrastructure and forthcoming tax cuts. Its foreign ministry denied accusations of currency manipulation to stimulate exports. Southeast Asia’s largest economies were still projected for healthy growth in 2018, in some cases matching that of the P.R.C. A median forecast from Bloomberg puts Indonesia’s 2018 GDP at 5.3%; Malaysia, 5.5%; Singapore, 3.1%; Thailand, 4.2%; Vietnam, 6.8%; the Philippines, 6.7%.9,10
What if the Brexit occurred without any deal defining how the European Union and the United Kingdom could continue to do business? That troubling question was on many minds in Europe in July. U.K. Prime Minister Teresa May publicly stated back in 2017 that “no deal for Britain is better than a bad deal for Britain,” and the E.U. has been advising corporations and governments to prepare for the possibility of a “hard” Brexit. A “no-deal” Brexit is a real risk, with the customs border between Northern Ireland (part of the U.K.) and Ireland (part of the E.U.) as the major sticking point. The Netherlands, Belgium, and the U.K. have begun to stockpile cash and resources in case of potential economic shortages or hardships caused by a trade chasm. The projected date for the Brexit is March 29, 2019, but it could be postponed. Fifty-one percent of U.K. respondents to a July Sky News poll felt the Brexit was a bad move for the country, and 78% felt May’s government was doing a poor job of negotiating the separation.11,12


Was July also a good month for foreign shares? Largely speaking, yes. India’s major indices and two South American benchmarks made the most dramatic gains. The Sensex advanced 6.16%; the Nifty 50, 5.99%. Brazil’s Bovespa topped both with a climb of 8.88%, while Argentina’s Merval jumped 12.27%. Mexico’s Bolsa advanced 4.27%. Speaking of emerging markets, the MSCI Emerging Markets index added 1.68%, while the MSCI World index improved 3.05% in July.13,14
In Europe, the German DAX rose 4.06%. France’s CAC 40 ascended 3.53%, while the FTSE Eurofirst 300 gained 3.19%. The United Kingdom’s FTSE 100 posted a 1.46% July advance, and Russia’s Micex improved 1.10%. Looking at the Asia-Pacific region, Taiwan’s TSE 50 rose 4.28%; Australia’s All Ordinaries, 1.22%; the Nikkei 225, 1.12%; the Shanghai Composite, 1.02%. Hong Kong’s Hang Seng slipped 1.29%; South Korea’s Kospi, 1.33%. To our north, Canada’s TSX Composite gained 0.96%.13


As stocks attracted investors during a solid earnings season, commodities lost some appeal. All the major energy futures declined across July, along with the four key metals. Oil closed the month at $68.43 on the NYMEX, taking a 7.84% loss. Unleaded gasoline dipped 4.85%; natural gas, 4.93%; heating oil, 3.19%. Copper stumbled 4.48% in July; silver, 3.18%; gold, 2.28%; platinum, 1.28%. COMEX gold was worth $1,223.10 an ounce at the close on July 31; COMEX silver, $15.54 an ounce. The U.S. Dollar Index added just 0.01% during July.1,15
Some crops did post big gains, while others fell hard. July winners included wheat at +11.57%, corn at +6.36%, cotton at +5.61%, and soybeans at +5.25%. Among the losers: coffee at -2.44%, sugar at -8.77%, and cocoa at -12.88%.15


New reports from the National Association of Realtors and Census Bureau showed home sales weakening in June. The slip in resales was minor: just 0.6%. It was, however, the third consecutive monthly retreat for existing home purchases; in spring, they slowed to a pace unseen since January. Some good news emerged to counter this: the NAR’s pending home sales index rose 0.9% in the sixth month of the year. New home buying fell off 5.3% during June; the May gain was revised to 3.9%.6,16
Home values continued their healthy appreciation. The latest 20-city S&P CoreLogic Case-Shiller index showed home prices up 6.5%, year-over-year, through May. Prospective buyers could take heart in the fact that mortgage rates were little changed in late July from where they were in late June. Freddie Mac’s Primary Mortgage Market Survey from June 26 listed the mean interest rate on the 30-year FRM at 4.55%, the mean rate on the 15-year FRM at 4.04%, and the average interest rate for the 5/1-year ARM at 3.87%; in the July 26 PMMS, the respective numbers were 4.54%, 4.02%, and 3.87%.6,17
The last month of the second quarter also witnessed less groundbreaking. In June, developers made 12.3% fewer housing starts and arranged 2.2% fewer building permits than in May, according to the Census Bureau.6


The Dow Jones Industrial Average and S&P 500 managed to catch up a little versus the Nasdaq Composite in July. Blue chips rose 4.71%, the S&P advanced 3.60%, and the Nasdaq improved 2.15% for the month. The Russell 2000 was not far behind in terms of performance, rising 1.69%. If it seemed that July was not all that volatile, the CBOE VIX’s performance will confirm your assumption; Wall Street’s top gauge of market instability fell 20.26% across July to 12.83, but remained up 16.21% YTD.1,18
The Nasdaq, Dow, Russell, and S&P are all firmly in the green for 2018 at this date. As the closing bell rang on July 31, their year-to-date numbers were as follows: DJIA, +2.82%; S&P, +5.34%; COMP, +11.13%; RUT, +8.81%. When that trading session ended, the four benchmarks settled at these levels: DJIA, 25,415.19; COMP, 7,671.79; S&P, 2,816.29; RUT, 1,670.80.1,18

DJIA 2.82 16.10 12.79 12.34
NASDAQ 11.13 20.85 22.31 23.00
S&P 500 5.34 14.01 13.41 12.22
10 YR TIPS 0.84 0.48 0.38 1.65

The second half of the year started with some promise: earnings and fundamentals largely came through and brightened the mood of investors contending with unanswered questions about global trade. July was the S&P 500’s fourth straight winning month, and 2018 is the twelfth year in the past 90 years in which the S&P has had an April-July win streak. In all previous 11 years featuring such a streak, the S&P advanced across the rest of the year. Will history repeat in 2018? Maybe not, but 11 for 11 is certainly encouraging. A strong finish to 2018 is by no means assured, as trade and diplomatic concerns, probable Federal Reserve rate hikes, and perhaps even a slowing U.S. business cycle cloud the horizon. The market will also exit earnings season this month, and that may leave less for investors to get excited about. Late-summer doldrums could certainly overtake Wall Street, but that does not rule out the possibility of a bullish fourth quarter.22

UPCOMING ECONOMIC RELEASES: What will investors pay attention to across the rest of August, in addition to the remaining earnings calls? They will look at the latest jobs report from the Department of Labor and ISM’s newest non-manufacturing PMI (8/3), the July PPI (8/9), the July CPI (8/10), July retail sales and industrial output (8/15), the Census Bureau’s latest snapshot of residential construction activity (8/16), the initial August University of Michigan consumer sentiment index and the Conference Board’s July leading indicators index (8/17), the NAR’s July existing home sales report (8/22), the Census Bureau’s latest new home sales announcement (8/23), July hard goods orders (8/24), a new Conference Board consumer confidence index (8/28), the second estimate of Q2 economic expansion and the NAR’s report on July pending home sales (8/29), July consumer spending figures and the July PCE price index (8/30), and lastly, the final August University of Michigan consumer sentiment index (8/31).