Ten Years Post-Lehman Brothers Bankruptcy

Florence could influence data for months to come

Last week, the East Coast prepared for Hurricane Florence, which roared through the Carolinas and Georgia. As investors kept their eyes on the weather and its potential for destruction, estimates emerged of up to $27 billion in hurricane damage. This potential for damage contributed to insurance companies in the S&P 500 declining last week.[i] While the hurricane likely won’t have a large effect on our economy, its destruction could influence data for months to come.

Meanwhile, last week brought another milestone in our economy: the 10th anniversary of Lehman Brothers’ bankruptcy. For 158 years, the Wall Street firm weathered the markets’ changes. By 2008, however, various challenges, including excessive risk taking, led to its demise. The firm’s unexpected bankruptcy announcement shocked investors and triggered market panic, leading what was a simmering financial crisis to become the Great Recession. A decade later, the markets are on more solid ground, and banks hold more capital and have stronger regulation. While some professionals or analysts warn of a potential looming recession, current market performance and economic data indicate just how far we’ve come.

Let’s examine last week’s data to understand examples of where we are today: Domestic indexes rebounded to post healthy gains for the week, with the S&P 500 adding 1.16%, the Dow gaining 0.92%, and the NASDAQ increasing 1.36%.[i] International stocks in the MSCI EAFE were also up, gaining 1.76%.

In addition, we received the following updates, which support a picture of a more robust economy:

  • Consumer sentiment jumped: The September reading was at its 2nd-highest point since 2004. The data reveals that consumers expect the economy to grow and create more jobs.[i]
  • Retail sales stalled but are primed for growth: Spending barely increased in August, after months of strong growth. However, analysts believe this data is “a blip” rather than an emerging trend, as tax cuts and a healthy labor market leave Americans with money in their pockets.[ii]
  • Industrial production rose for the 3rd-straight month: Auto manufacturing contributed to higher than expected industrial production in August. For now, trade tensions have not yet hurt this sector.[iii] 

These data reports may not show blockbuster growth, but together they indicate our economy is doing well. In fact, they were strong enough to lead many economists and analysts to increase their projections of how fast the economy expanded during the 3rd quarter.[iv]


Looking back, the markets have come far from where they were 10 years ago. But risks will always remain, as Hurricane Florence and Lehman Brothers remind us. Today and in the future, we are here to help you understand where you are and plan for whatever may lie ahead.

Also, for those affected by the hurricane, we’re ready to support your recovery and provide the financial guidance you seek.

ECONOMIC CALENDAR

Tuesday: Housing Market Index

Wednesday: Housing Starts

Thursday: Existing Home Sales, Jobless Claims

DATA AS OF 9/14/2018 1 WEEK SINCE 1/1/18 1 YEAR 5 YEAR 10 YEAR
STANDARD & POOR’S 500 1.16% 8.65% 16.40% 11.47% 8.78%
DOW 0.92% 5.81% 17.80% 11.21% 8.64%
NASDAQ 1.36% 16.03% 24.59% 16.56% 13.48%
INTERNATIONAL 1.76% -5.45% -1.02% 1.65% 1.29%
DATA AS OF 9/14/2018 1  MONTH 6  MONTHS 1  YEAR 5  YEAR 10  YEAR
TREASURY YIELDS (CMT) 2.02% 2.33% 2.56% 2.90% 2.99%

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.


[i] https://www.bloomberg.com/news/articles/2018-09-12/florence-to-batter-u-s-data-but-harm-to-economy-likely-small

[ii] https://money.cnn.com/2018/09/14/investing/lehman-brothers-2008-crisis/index.html

[iii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US

[iv] https://www.msci.com/end-of-day-data-search

[v] https://www.cnbc.com/2018/09/14/september-consumer-sentiment.html

[vi] https://www.marketwatch.com/story/retail-sales-grow-by-smallest-amount-in-six-months-but-spending-primed-to-rebound-2018-09-14

[vii] https://www.marketwatch.com/story/us-industrial-production-up-for-third-straight-month-on-strength-in-autos-2018-09-14 [1] https://www.bloomberg.com/news/articles/2018-09-14/retail-sales-factory-output-signal-steady-u-s-economic-growth?srnd=markets-vp



Markets Up Again

Trade continued to dominate the news last week and cause market volatility as investors monitored discussions of the North American Free Trade Agreement (NAFTA) and tension with China. While Mexico and the U.S. reached a new trade deal early in the week, talks with Canada stalled on Friday, August 31. Reports also came out that President Trump may be adding tariffs on another $200 billion in Chinese goods.[i]

Domestic markets increased for the week and ended August in positive territory. The S&P 500 and Dow each had their best August since 2014—while the NASDAQ’s 5.7% growth was its best performance for the month since 2000.[ii] On Wednesday, the S&P 500 reached a new record high.[iii] For the week, the S&P 500 gained 0.93%, the Dow added 0.68%, and the NASDAQ increased 2.06%.[iv] International stocks in the MSCI EAFE joined the growth, adding 0.26%.[v]

Key Data From Last Week

Although trade might have dominated headlines, last week provided a number of informative economic updates, including:

  • Personal incomes grew in July.

The 0.3% increase fell slightly short of the projected growth but is still up 4.7% since this time last year. Combined with growth in personal consumption, this data indicates that consumers had a solid start to the 3rd quarter of 2018.[vi]

  • Gross Domestic Product (GDP) was higher than initially thought.

The 2nd reading of GDP expansion between April and June was 4.2%, higher than the initial reading and still the fastest economic expansion since 2014. Economists don’t believe this pace is sustainable, however, as rising interest rates, ongoing trade tension, and fading tax-cut benefits could slow growth later in the year.[vii]

  • Consumer confidence soared in August.

The latest consumer confidence data came in higher than it has since October 2000. This strong reading may indicate that consumer spending will remain healthy for now.[viii] Since consumer spending is more than ⅔ of the U.S. economy, its growth is a critical factor to track.[ix]

This week’s performance and reports once again underscore a message we have frequently shared with you: Instead of focusing on the headlines, pay attention to the fundamentals for a clearer understanding of the economy. If you have questions about how this data affects your financial life, we’re here to talk.

ECONOMIC CALENDAR

Monday: U.S. Markets Closed for Labor Day Holiday Tuesday: PMI Manufacturing Index, ISM Mfg Index, Construction Spending


[i] https://www.reuters.com/article/us-usa-stocks/wall-street-mixed-as-u-s-canada-trade-talks-end-idUSKCN1LG1IU

[ii] https://www.cnbc.com/2018/08/31/us-markets-global-trade-tensions-ramp-up.html

[iii] https://www.bloomberg.com/news/articles/2018-08-30/asian-stocks-to-weaken-on-tariff-plan-yen-rises-markets-wrap?srnd=markets-vp

[iv] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US

[v] https://www.msci.com/end-of-day-data-search

[vi] https://www.ftportfolios.com/Commentary/EconomicResearch/2018/8/30/personal-income-rose-0.3percent-in-july

[vii] https://www.bloomberg.com/news/articles/2018-08-29/u-s-second-quarter-growth-revised-up-to-4-2-on-software-trade

[viii] https://www.marketwatch.com/story/consumer-confidence-soars-to-18-year-high-2018-08-28

[ix] https://www.thebalance.com/consumer-spending-trends-and-current-statistics-3305916