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August Performance looked like a Bouncing Tennis Ball from the U.S. Open

We saw wild swings in August, almost every single day, as the tariff rhetoric was flying back and forth between the U.S. and China. Both sides increased tariffs, with the first wave on Chinese goods hitting in early September, and the next hit will take effect in December. Throw in the tweeting tirades of our President and you get the chart below for the month of August. We must be fair and state that the collapsing global yields and our Fed are a sideshow, but everything is circulating around trade. Germany saw large drops in all of their government bond yields, as they are inching closer to a recession. The world’s economies are experiencing a slowdown and whether we get a trade deal or a war, will matter, as things will stabilize or worsen. The central banks around the world, can use all of their limited tools, but an expanded trade war will hit every economy like a hammer.

S&P 500 (August 2019)


Now, that is the bad part, but we seem to be going through this volatility all summer, like a battle between Roger Federer and Rafa Nadal (tennis players). But there is a resiliency in the market that we can’t deny. Now, is it the occasional message from the White House that “we just had a call with the Chinese”, the Fed teasing the market with rate cuts, or in reality the market cannot fathom a scenario where the U.S. and China will allow a trade war to escalate, as both parties will suffer, and especially the two egotistical leaders. Even though the belief that there will be a trade deal is fading, the market still sees some type of “mini-deal” next year, as the thought continues to be that our President cannot head into the summer with a fragile economy and American citizens waking up to the fact that they are paying the new tariffs.

It’s important to be diversified this year, but in a way that is not accustomed. As of today, the following investments are all up, YTD: S&P 500 is up 18.9%, TLT (20+ yr. Treasury Bond) is up 21.99%, Gold (GLD) is up 18.31%, and Silver (SLV) is up 20.8%. So, with all of these terrific numbers you still have investors fearful and shifting assets monthly between stocks and bonds like it’s a struggle to beat cash, which is also paying between 1.5%-2.0%. This is highly unusual to see all of these assets up, significantly, together. Last year we saw all of these asset classes were negative, except for cash. So, you get the feeling things are different. But in reality, stocks are still the best place to be as the treasuries and commodities will reset again, unless the dreaded trade war gets worse. As you see its difficult to make any type of longer-term projections with so much chaos and breaking news that can occur at any moment, but its important to be invested and tactical, versus sitting in cash and panicking.

We expected August was going to be bad, as we got the initial tweet to raise tariffs, from the President, the day after the Fed cut rates, which tanked the market. September is looking better, and the market will be excited and start to price in the next rate cut (0.25 % -> over 99% probability) and a small probability of a 0.50% cut. The market would love the latter. Not to be completely repetitive on a monthly basis, but its all about trade. We will continue to bounce around on good and bad news, but this market needs something more substantial to move much higher. There are rumors now of an upcoming call and a meeting with China. And if they do a deal, great, this market will surpass its highs, as our economy is still strong. But its complicated as its difficult to see how a deal will involve Huawei and the theft of our intellectual capital. A big concern will be the next earnings season if we start to see earnings, revenue and future guidance affected by the tariffs. As we previously mentioned, that many companies will initially “eat” the tariffs, as they will expect weaker sales if they are passed along to consumers. But, of course, that can’t go on for long, as that will eventually lower future earnings.

We are keeping an eye on Germany to see if they can maneuver out of the way of a recession. There seems to be growing concerns with the upcoming BREXIT, as new PM Boris Johnson, recently lost a vote of confidence on a “no-deal” break from the EU. They are likely to be facing elections soon, prior to the October deadline.

Our government bond yields have stabilized, somewhat, but they continue to tick lower when we hear bad news, as foreign investors continue to pour in, as they are fleeing the negative yields that are expanding worldwide. Negative bond yields are nearing $17 trillion now.

The U.S. continues to outperform China, YTD. This should continue even if the trade war escalates. If things worsen, we will see China pour stimulus into their economy, as they have been doing. The most that the U.S. will do is to cut rates at this point. We really don’t expect, or hope, that the Fed goes beyond 0.75% in total cuts this year.

Another external factor is still the protests in Hong Kong as we don’t want the Chinese army to charge into the city and to force the protests to end, in a more physical manner. They recently pulled back the recent law allowing China to prosecute people in its own territory, outside of Hong Kong. The problem here is, not the people that commit crimes, but China has a history of “selecting” who they think are disruptors or enemies of the state, which is the real concern.

If you have any questions or comments, please contact me.


John Anagnos

Managing Principal

Chief Investment Officer


3828 Kennett Pike

Suite 212

Greenville, DE 19807

Office: 302-543-4446 Fax: 302-510-4166


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