Stocks got off to a terrible start this month. Kicking things off, President Trump instituted new tariffs on China. China countered with a devaluation of their currency and suspended some purchases of U.S. agricultural products, while indicating they may also add tariffs on these. The trade war is turning ugly as the tit for tat trade battle appears unlikely to end anytime soon. Add in Brexit, and the central banks of the world are battling a two-headed monster. Stocks have managed to pare the sharp losses from early this month with one trading day left before Labor Day weekend and the unofficial end of summer.

Global businesses are reluctant to invest when trade parameters between the U.S. and China and between Great Britain and the European Union are uncertain. The result is that manufacturing growth worldwide has come to a standstill and is beginning to contract in many countries. Thankfully, this slowdown is being offset by a still vibrant consumer here in the U.S. as unemployment plumbs near all-time lows and wage growth is ticking up. For the moment, the expectation of falling interest rates here in our country appears to be trumping the uncertainty caused by the trade war.

While the Fed has not wanted to tip their hand (perhaps in part due to not wanting to appear to be succumbing to pressure from the White House), they are expected to lower interest rates again at their next meeting in September. I believe their hand is forced somewhat by China’s depreciation of their currency and not wanting the US Dollar to become too strong versus other currencies. While anything can happen in the near term with the stock market and the trade war and Brexit sagas, I believe stocks very attractive valuation versus bonds bodes well for stocks over the longer term.

Glenn S. Rank, CIMA®

Certified Investment Management Analyst®

President