For as long as I can remember August has always been a slow relaxing month – but this August was anything but that for investors.  Volatility hit the highest level thus far in 2019 as trade frictions continued to dominate the headlines.  Talk of the U.S. inverted yield curve (when short term bonds pay higher interest than long term bonds) caused investors to worry that the U.S. is headed towards a recession.

As a result, many investors crowded into ‘safe haven’ assets like Treasuries (U.S. Government Debt) and Gold.  Meanwhile the U.S. Federal Reserved lowered interest rates; which provided support for the markets and by month’s end the S&P 500 Index finished higher despite the bumpy ride.  If nothing else this past August reminded us of the benefits of diversification – and the importance of ignoring the noise and remaining invested.

What to Watch for in September

Brexit.  The Brexit chaos continues as politicians battle over whether the U.K. will leave the European Union with or without a deal.  Lawsuits have been filed, people have been fired and/or resigned.  All this uncertainty over economic policy could negatively affect business investment and will likely continue to put pressure on the pound.

U.S vs. China.  The volleying between positive and negative trade talks between the U.S. and China have kept the markets in continuous flux.  U.S. manufacturing has already been hurt by the trade war and tariffs that went into effect September 1st are expected to impact consumers.  However, it is believed that as the 2020 U.S. presidential elections approaches, the U.S. will take minor concessions from China in order to strike a deal.

The Yield Curve.  The 2-year/10-year Treasury yield curve seems likely to invert again; and although historically it is viewed as a sign that there is a recession on the horizon, it is not a foregone conclusion.  The U.S. economy is expected to slow; but many believe not enough to cause a recession in the next 12 months.

Rate Cut in U.S.  The Federal Reserve is expected to cut interest rates again in September, but that may be the last one for the year.  Federal Open Market Committee members have stated they are reluctant to cut rates again if it can be avoided.  Cutting interest rates can not provide an antidote for the trade war; the biggest impact would be on the stock market.

There is a lot going on in the world today; news headlines always seem to dramatize the worst.  As an investor you should try to avoid the noise and stay well-diversified with your investments.  At this point we want to keep the equities in our portfolios, but also have adequate exposure to alternative asset classes.  And remember, keep an eye out for buying opportunities – which often present themselves in periods of volatility.

Have a great weekend,

Tracey

 

 

 

Source: Original post on AdvisorAnalyst.com, 09-03-19 by Staff.  And Invesco.ca blog by Kristina Hooper, Global market Strategist Invesco Ltd.