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The Northern Star 08/23/18 Trade & Turkey Drive Markets


Message from Jon

Market Update:
The market has continued to surprise with upside gains and limited downside retreats. We have seen the indicators rally from 0.08% to 0.48% over these past couple months and even showed relative strength in both Domestic Equities and Cash with a decline in International and Precious Metals.
Speculation is that the rally has been boosted by the increase availability of capital thanks to the tax reform.1 My opinion is that the verdict is still out on that one. Being a business owner, the change in taxes provides a boost in the short run but over the long haul, you still have to produce whatever you are in the business of producing and be profitable as a result.
President's latest round of interest seems to be discussions to move business reporting results from a quarterly to a semi-annual basis.2 I can see why the general public would deem this ludicrous but again, from a business stand point, the amount of information and preparation that goes into a reporting season is mind boggling in addition to the focus on the bottom line rather than on what truly makes a company valuable....innovation, productivity and profits! This does have merit but the real question is can he push through the muck and mire of Washington to accomplish anything on this front or does it get chucked onto the scrap heap labeled "beneficial ideas" and forgotten about in favor of the #ITSALLABOUTMENOW attitude and appetites?
Based upon a successful earnings season, our opinion at the moment is that the worry and woe of a recessionary correction & possible market crash has been once again delayed until well into 2019 but more like 2020-2021 time frame. This beckons investments to remain in play and shooting for growth of principal rather than conservative and defensive. Should anything in the data change our mind, we will certainly change our approach.
Till we speak again, enjoy your week!

Trade & Turkey Drive Markets


Challenges in emerging markets affected both U.S. and global stock performance last week, with the S&P 500 experiencing several down days.[1] By market close on Friday, however, two of the three major domestics posted gains for the week. The S&P 500 added 0.59%, the Dow increased 1.41%, and the NASDAQ lost 0.29%.[2] Meanwhile, the MSCI EAFE international stocks slipped 1.18%.[3]
As several reports deepened our understanding of the economy's underlying health, investors balanced the news with updates on Turkey and trade disputes.[4] Here are some key highlights of the various developments:

Economy: Mixed PictureThe latest unemployment data beat expectations, indicating continuing strength as the labor market is near full employment. However, new home construction missed its 7.4% projected growth, increasing only 0.9% in July - following June's 12.3% decline.[5] Nevertheless, more positive news emerged: Thanks to tax cuts, a solid labor market, and economic growth, retail sales increased 6.4% in July year-over-year. Retail sales have now risen for the past 6 months.[6]

Turkey: Sanctions and a Tumbling Lira On Monday, August 13, the Turkish lira hit its lowest point ever against the U.S. dollar.[7] The U.S. has threatened more sanctions on Turkey if the country does not release U.S. Pastor Andrew Brunson. In addition, Turkey's inflation is swelling, and President Recep Tayyip Erdogan may be suppressing the central bank's ability to increase interest rates. The lira may continue to decline in value until interest rates rise.[8] Some analysts are optimistic that these developments won't create contagion in other markets. Not only is Turkey's economy relatively small and investors have priced in some risk, opportunities still exist to help calm Turkey's challenges.[9]

Trade Update: Positive MovementLater in the week, we received positive updates on trade challenges with China and the North American Free Trade Agreement (NAFTA). Mexican economy minister, Ildefonso Guajardo, announced that he hoped to finalize some NAFTA negotiations by this week.[10] In addition, officials from the U.S. and China will be meeting in Washington, D.C. this week to discuss the ongoing trade disputes. These talks come before the anticipated meeting in November between President Trump and Chinese Leader Xi. A trade war with China has been one of the market's largest concerns, so if the tension lessens, that is likely good news for equities.[11]

Looking AheadThis week, we'll receive more information about the housing market that reveals how this key industry is currently performing. We will also continue to track developments in trade and Turkey. As always, if you have any questions about what you read here or what you're hearing elsewhere we're available to talk.

Wednesday: Existing Home Sales
Thursday: New Home Sales, Jobless Claims
Friday: Durable Goods Orders

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

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