Stocks were down 0.1% in August
after hitting all-time highs of 2193 for S&P 500 then closing at 2170, l up
6.2 % year to date.
Ten year U.S. treasury yields
rose from 1.33% July levels, to 1.57% on August 31. The Fed continues to talk
about raising the Fed funds rate by year end. The biggest monthly sector loser
was Utilities Select SPDR or (XLU), which dropped 5.5%.
Despite constant chatter from
talking heads, we expect no action on rates until we are past the November
elections.
GDP seems to be picking up in the
second half and corporate profits, while still anemic, are moving in a positive
direction.
September is typically a down
month for the stock market. BREXIT losses have been erased as dire predictions
have not come to pass.
The EU continues to demand more
taxes from successful companies like Apple even as the Irish tax authority says
the company does not owe $14 billion claimed due by the bureaucrats in
Brussels.
The U.K. vote has brought
all these issues to the forefront for discussion.
We are concerned that investor
sentiment has turned too bullish of late. Equity mutual funds continue to shed
assets in favor of index ETFs and bond funds.
On the positive side, we see no
recession in sight. We see a flatter but not inverted yield curve. We expect
only a slow rise in inflation and rates, between now and year end. Valuations
for stocks while high are supported by low bond yields and easy earnings
comparisons moving forward.
Both the ECB and Bank of Japan
continue to print money and buy more financial assets to prop up weak
economies.
Emerging markets have rallied off
winter lows. Collectively they have lower P/E ratios and higher growth rates
than developed markets. European and US bank stocks have rallied off lows.
Prior to the November election,
we expect lots of negative ads and some surprises that may roil markets.
Stocks appear to offer better long
term prospects than bonds which have become expensive.
If we experience a market drop
this Fall, we expect it to be fleeting.
Goldilocks continues to romp free
from interference by the 3 bears.
Doug
Coppola
John
Coppola
September
1, 2016
Communication
is for informational purposes only & doesn't constitute offer to sell or
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with the explanation of the matters described herein & not intended or
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