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Think Strategically: The Unsung Story of Paciv Foundation
Published Thursday, September 20, 2018 7:00 am
by Francisco Rodríguez-Castro

The Week in the Markets: September, the barometer month

Last week most stocks ended the week with substantial increases, the market indicators closed in positive territory and the Dow Jones Industrial Average stood at 26,154.67, which was a high gain of 283.30 for the week. The S&P 500 closed at 2,904.98, a gain of 33.30 for the week and the Nasdaq closed at 8,010.04, an increase of 107.45 for the week. As most stocks rebounded from the previous week’s decline, we continue to note that trade is very much present in all headlines and on the minds of investors. These headlines continue to add volatility to the market because it is quite difficult to predict an unpredictable president. Even with the erratic nature of President Trump, we believe these are negotiation tactics. In the long term, it is my view that most trade negotiations will be resolved and, in turn, global demand and growth for products will not be affected. A snapshot of the U.S. economy shows it is fundamentally sound with strong job growth and most sectors producing increased earnings growth, which should translate into increased U.S. and global stock prices.

In our experience, September usually is the month of the year when people are back from summer vacation, and investors zero-in with laser focus on the weaknesses of the markets so far in the latter part of September, and we have not seen increased volatility due to deficiencies. Instead, the markets have been driven by trade negotiations.

For the year end, we see several macroeconomic matters that may impact the markets, and they include:

  • Continued job growth;
  • Inflation pressure;
  • Interest-rate increases by the Fed;
  • Political uncertainty in the midterm.

As we continue to review the market fundamentals, we believe the current bull market will keep and carry us into the first quarter of 2019.

The current solid combination between sustained gross domestic product growth and inflation remain contained at 2.2 percent over the first eight months of the year. It is our view that the current stock-cycle growth will eventually subside once the Federal Reserve Bank increases rates to much tighter monetary policy to what is usually called “restrictive rates.”

September 2008-September 2018: A decade that changed it all

Almost 10 years ago to date, we saw the fall of Lehman Brothers into bankruptcy that pushed the U.S. financial crisis into a global crisis. We saw mighty Merrill Lynch merge into Bank of America to save itself. The Dow Jones Average fell 777.68 points, which at that time was the most significant point drop in history. All this drama further worsened when Congress failed to approve the Troubled Assets Relief Program, known as the Bank Bailout Bill. As we consider this 10-year anniversary of the financial crisis, we must consider the critical perspective a decade provides. To