Difficult month of August for the US market

The fall experienced by Chinese equity markets since June was the first wake-up call. A second trigger came when the Bank of China devalue-ed its currency.

The minutes of the latest FOMC meeting revealed that the Committee had doubts about several aspects of the economic outlook, including growth, inflation, and developments abroad.

On the brighter side, however, data on durable goods orders for July handily beat market expectations and shipments of core capital goods were strong. New home sales remained solid and added to a string of good housing data.

Looking at sector performances, the plunge was rather widespread, with some defensive sectors and oil consumers outperforming the market by a small margin.

We raised some cash in the first half of August, as the markets fell through all their technical supports. We started to reinvest towards the end of the month, finding the correction to be overdone.

• On a sector level, we expanded our positions in IT, Energy, Industrials and Telecoms. Consumer Staples and Financials were a source of cash.
• We expanded or initiated positions in Brown-Forman, EOG, Occidental Petroleum and others. We reduced positions in MetLife, JPMorgan and others.
• Our largest active positions are Intercontinental Hotels, Visa, Occidental Petroleum and Ingersoll Rand.
• The global healthcare market succumbed to the general equity sell-off and even very slightly underperformed the broader equity markets. The year-to-date performance remains excellent and well above the broader market. The decline was led by the big biotechnology companies, and by the industry as a whole, without any specific news coming out. Except for the rather resilient US health insurance companies, the healthcare sell-off was fairly indiscriminate, hitting big and small companies alike.
• In the Consumer discretionary sector, the performances were reasonable, mainly thanks to Amazon and the retail segment. Automobiles, Hotels and Luxury goods were lagging.
• We remain underweight on the Industrials sector, with Capex remaining mixed. The B to C segment fared a little better and we have doubts on all the Agricultural names.
• We remain neutral on Materials, as there are few mining names besides those in Europe.
• Everybody thought the Consumer Staples sector would have been impacted by the falling Emerging Markets. But most US companies have a sizeable domestic sales base, which showed decent growth (Coca-Cola, Pepsico, including their snack division).
• We are maintaining our position in Telecoms, mainly driven by big names like AT&T and Verizon. We are also neutral on IT which has little going for it right now.
• We have few convictions for the moment and are staying neutral on several sectors. US consumption and wage growth are both still positive.