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August 3, 2018...7 Things to Know About the Markets & the Economy

This Week’s…. 7 Things to Know About the Markets & the Economy

1.  Despite some interesting headlines and cross currents, markets generally traded in a tight band. REITs and MLPs led to the upside while International stocks turned in the weakest performance.

2. The Economy Keeps Chugging Along… This week we learned the economy grew 4.1% in 2Q18- the fastest pace since Q314! Beware though… In the two quarters following President George W. Bush's 2003 tax cuts, GDP hit 6% but then steadily declined.

3. Two More Interest Rate Hikes This Year?  Yes, the Fed signaled as much on Wednesday. The economy looks to be expanding nicely with low levels of inflation, giving the Fed the green light. Hikes will be 25 bps apiece, so rates look to be 50 basis points higher by year end, taking the Fed Funds rate from 2% to 2.5%.

4. Earnings Have Been Great But… Despite more than 85 percent of S&P 500 members beating analyst estimates, the type of pro-cyclical companies you’d expect to surge amid banner earnings have been falling behind. Not even the biggest winners of the year are posting reliable gains, as earnings misses from the likes of Netflix Inc. and Facebook Inc. hamper the momentum trade

5. Trade Hardball Continues: After rumors about restarting trade talks Tuesday, China and the U.S. got back to trading threats this week. The Trump administration is considering doubling the tariffs on $200 billion in Chinese imports from 10 percent to 25 percent. China responded by warning against “blackmailing and pressuring" by the U.S. to force it back to the negotiating table. Authorities in Beijing may be feeling the pinch from the tariffs as the country’s central bank is actively encouraging banks to extend more credit to boost their cooling economy.

6. The Hope for Value: Large Cap Growth stocks outperformed Value by 12% last year and so far YTD they’re outperforming by another 10%. When the much maligned Value stocks will begin to outperform Growth stocks? This week Value stocks outperformed ever so slightly.  The Growth parade led by the FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks took a pause as Facebook’s earnings disappointed last week. A turn in this dynamic is long overdue.

7. This Week’s Sign That the Apocalypse is Upon Us: Ready, Aim, Hire a ‘Fortnite’ Coach: Parents Enlist Videogame Tutors for Their Children. The Wall Street Journal: It’s not the violence or the addiction of the hit game that bothers mom and dad—it’s the losing. Read the full story

What We’re Reading:

  • The 18 Best New Restaurants in America (Eater), Ernest Hemingway’s 8 Favorite Bars Around the World (Architectural Digest)
  • Leonardo Da Vinci’s To Do List (Circa 1490) (Open Culture)
  • A Look at Apple's Trillion-Dollar World (Bloomberg), Hauwei passes Apple in smartphone share for first time.
  • Smart guys are the most dangerous: prone to overconfidence, and susceptible to overthinking — both deadly sins in money management. (Behavioral Macro)
  • 401(k) investors: Why lingering fears are actually good for stock investors (USA Today)