Weekly Talking Points

1. The S&P 500 ground out a positive 0.66% last week while the Dow Jones Industrial Average shot up 1.48% on a softening of the “trade war” talk between the US and China.   International markets continued sell off with political tensions (mainly Turkey) as both developed (MSCI EAFE) and emerging (MSCI EM) declined 1.10% and 3.68% respectively.
2. Retail sales in the US continue to impress, as they increased 0.5% month over month in July. As long as the consumer, well, consumes, this is a good indicator of future growth.  Particularly encouraging were sales at restaurants and gas stations as these are considered discretionary (generally the first to slow or decline in times of economic stress).
3. The selloff in emerging markets is somewhat disappointing. Coming into the year our investment committee was constructive on EM in general and we got this one wrong.  The strengthening dollar has been the main culprit up until last week, when Turkey and concerns over their currency (the Lira) took the lead.
4. While the strengthening dollar and trade talks certainly have been headwinds for EM, there have been plenty of other currencies that have had issues this year as well. According to Legg Mason: …the fall in the Lira “masks the focused nature of the problems, which, for the most part, have been due to issues in five of the 22 main EM currencies: Argentina, Turkey, Brazil, South Africa and Russia, whose currencies have fallen, year to date, about (38%), (37%), (16%), (15%) and (14%), respectively.”
5. We will be doing a large rebalance of accounts this week and next week as we may be starting to see a change in leadership in markets. Dividend payers have lagged growth-oriented stocks in general for 5+ years, and especially for the past 12 months.  We have taken advantage of this for the most part, however valuations and momentum are have made us reconsider that position.  We will begin to even out (i.e. no longer have a growth overweight) and add to dividend payers as appropriate for the individual client in the coming weeks.

Bottom Line

As I noted in the 8/6 “bottom line”, dividend payers time may finally have come.  The tide may be shifting for these stocks.  The good news if we are “wrong” I don’t believe we’ll be wrong by much.  The valuations for the most part speak for themselves in my opinion and while we still do not see immediate signs of a recession, there may be little sense in buying “yesterdays news”.

Joel P. Faircloth, MBA
Chief Executive Officer, Aspen Wealth Strategies
Wealth Advisor, RJFS

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