August has been a somewhat choppy month for the S&P 500 as stocks have reacted to headline news, rumors of trade developments, and tweets, while US fundamentals remain fairly healthy.  The S&P 500 closed the month down by about 2%, but is still up approximately 17% for the year (YCharts). 

The headline risks we have outlined throughout the year continued to evolve in August:

• Yield Curve – the 10YR-2YR yield curve inverted. A yield curve inversion is often cited as a sign of pending recession. We agree that an inversion should be taken seriously, but note that the inversion has not historically been a good timing indicator. Click here to read more about the yield curve inversion on our blog.
• Central Banks – The Fed held their annual symposium in Jackson Hole and continued to suggest that they are ready to cut rates as they monitor the risks of a slowing global economy and trade uncertainty.
• Brexit – Boris Johnson, the UK’s new prime minister, called for a suspension of parliament which shortens the amount of time parliament will be in session before the October 31^st Brexit deadline.  This may lead to uncertainty as investors consider the increased likelihood of a no-deal Brexit.
• Trade – the ups and downs of the US-China trade war continued.  We saw an escalation of tariffs as China, then the US retaliated throughout the month.  That said, it appears talks will continue in September and changes could come at any moment.

While we believe the economy is unlikely to move into a recession immediately, we do feel that there are increased risks of a recession looking out beyond this year. We will continue to monitor trade developments, central bank policy, political and geo-political risks and will look to make changes to portfolios as we get further clarity on the evolving economic environment. 

We understand that headline news can be concerning, particularly when headlines lead to volatility.    For those clients that have a blended allocation (stocks and fixed income in portfolios) volatility has been somewhat offset as fixed income was up almost 3% in August (Bloomberg Barclays US Agg) while stocks (S&P 500) were down about 2%. (YCharts)

Sincerely,

Your TLWM Team

* Investment advice offered through TLWM, LLC., a registered investment advisor.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

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* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

*Credit risk can be a factor in situations where an investment’s performance relies on a borrower’s repayment of borrowed funds. With credit risk, an investor can experience a loss or unfavorable performance if a borrower does not repay the borrowed funds as expected or required. Investment holdings that involve forms of indebtedness (i.e. borrowed funds) are subject to credit risk.

* Typically, the values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise, which may cause your account value to likewise decrease, and vice versa. How specific fixed income securities may react to changes in interest rates will depend on the specific characteristics of each security. Fixed-income securities are also subject to credit risk, prepayment risk, valuation risk, and liquidity risk. Credit risk is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of a bond to decline.