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Economic & Market Outlook  

August 2018

Despite some periods of volatility, July proved to be a very good month for U.S. equities.

Small-cap stocks had been outperforming large-cap stocks, but the trend reversed in July.

U.S. equities were up 3.72% in July, driven primarily by strong second-quarter earnings growth. The unexpected strength in the U.S. economy has helped drive U.S. stocks and the dollar over the past several months.

We expect that the equity markets will be volatile for the remainder of the year, as pending trade tariffs are adding uncertainty to the economic outlook.

Higher interest rates and impending tariffs continue to hurt emerging markets stocks. Higher interest rates make it more expensive for overseas borrowers to service their debts.

Chinese stocks have been hit particularly hard by tariffs and slowing economic growth.

The second-quarter GDP report was quite strong. The rest of the year is expected to be considerably softer due to fading benefits from tax cuts and stronger headwinds from trade.

The Fed repeatedly emphasized the economy’s strength after its two-day policy meeting. It offered nothing to dispel expectations that it would raise rates in September.

Most investors still expect two more rate hikes this year but some think the Fed should pause, taking notice of the flattening yield curve and muted inflation expectations.

We favor international equities based on improved economic growth and attractive valuations relative to the U.S. markets.

  • This information has been compiled using data and other statements of fact derived from sources which we believe to be accurate and reliable. However, such data and other statements of fact have not been verified by us, and we do not make any representations as to their accuracy or completeness. Any opinion expressed herein reflects our judgment at this date and is subject to change.

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