August 2017 Market Update

The economic recovery is a little like the Energizer Bunny – it just keeps going. Signs of the good times are all around us. The Dow Jones hit another high, breaking through 22,000 for the first time on August 2. The jobs report for July showed 209,000 new jobs for the month and unemployment declined to 4.3%, the lowest rate since March 2001. Corporate profits have generally exceeded expectations. By any measure, this seems to be an economy hitting on all cylinders.

Hidden in all this good news is the somewhat surprising slump in the dollar relative to other currencies. Normally, the red-hot US economy would translate to a stronger dollar as more investors rush to invest money in the US. But just the opposite is happening with a declining dollar against pretty much all the major world currencies including the Euro, the Chinese Renminbi, the Japanese Yen, the Swiss Franc and even the British Pound which has been pummeled in the wake of Britain’s decision to pull out of the European Union.

The decline in the dollar is also surprising, given that the US generally – and the US dollar in particular – are considered safe-havens in a turbulent world. But this time, it looks like the world is laying at least some of the responsibility for global turbulence at the doorstep of the United States. This has much to do with recent antics in Washington and, more recently, the saber-rattling between Donald Trump and the North Koreans. Whatever the reasons, our currency is not doing as well as our economy.

Perhaps the best measure of the nervousness in the equities markets is the performance of the VIX, also known as the Volatility or “Fear” Index that was created by the Chicago Board Options Exchange. As recently as July 26, this index dropped below 9, it’s lowest reading ever. But over the past few days, the index has risen again, partly due to escalating tensions between the US and North Korea but possibly also due to growing concerns about American leadership (or the lack thereof) on the world stage.

So, here we are once again wondering if we should pop the champagne or run for the hills? If you’re looking at the stock market, unemployment rate or corporate profits, this is indeed the best of times. But if you’re wondering how far those North Korean intercontinental ballistic missiles can really travel, then perhaps buying more stocks is not your primary concern.

My best advice – assuming North Korea hasn’t launched a nuclear missile at Guam, or the US hasn’t launched a pre-emptive attack on Pyongyang by the time you are reading this article – is to take a deep breath and relax. It’s still August, a generally a slow month for the markets while many Wall-Streeters are out on vacation. So, do like the magnates. Take a break. Go to the beach (it doesn’t have to be The Hamptons) or escape to your cabin. We only have a few weeks left to enjoy the summer before school starts up again (well, maybe not in Illinois – but I digress). Enjoy the last weeks of our all-too-short summer season. Fall is just around the corner and summer hours will be a thing of the past very soon. We’ll be back at work worrying about the next crisis before you know it. They’ve been coming fast and furious lately. No sign that that is going to change anytime soon.

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