Records and regrets: U.S. stocks reach new highs while international stocks retreat.

August was another record-setting month for stocks here at home, as domestic equity returns hit new highs. It was a different story overseas, however, as international equity markets were somewhat unsettled by economic news abroad. On the fixed-equity front, bond markets were noticeably calmer last month.

What happened.

Equity markets diverged sharply in August. Domestic equities produced strong returns, hitting new highs. Large-cap stocks, represented by the S&P 500, climbed +3.26% for the month. Small-cap stocks (represented by the S&P 600) did even better, rising +4.83%.

While domestic stocks were climbing, the international equity markets slipped. Developed-market stocks (MSCI EAFE Index) fell 1.93% in August and emerging markets struggled, with the MSCI Emerging Markets Index dropping 2.70%.

Bond markets were noticeably calmer in August. The yield on 10-year Treasury bonds declined from 2.96% at the beginning of the month to 2.84% at month-end. That helped the Bloomberg Barclays Aggregate Bond Index rise +0.64%.

Events in August.

Domestically, strong U.S. equity returns reflected positive economic news that included the recent sky-high valuations of Apple and Amazon (see sidebar). U.S. GDP (gross domestic product) growth for the second quarter was revised upward to 4.2%, the fastest pace since 2014. The unemployment rate ticked down to just 3.9%. And corporate earnings continued their strong showing. Per FactSet, a financial data company, 79% of companies reported a positive earnings surprise in the second quarter.

Disappointing international equity markets reflected less-positive economic news overseas in August. Markets in Asia and Europe were unsettled because of speculation that the U.S. was considering raising tariffs from 10% to 25% on select Chinese goods. Overseas markets were further unsettled by volatility in emerging-market currencies. The Turkish lira fell significantly against the U.S. dollar after calls to double tariffs on Turkish steel and aluminum mid-month. Argentina’s currency suffered a similar dip, and its central bank raised interest rates by +15% to an eye-watering 60%.

Unsurprisingly, such economic news brought uncommon volatility to emerging-market equities. In August, over a third of trading days produced swings up or down of greater than 1%.

What it means for you.

Most personalized Financial Engines portfolios are weighted slightly more to domestic stocks than to international. This, along with our allocation to bonds, means your portfolio will likely have been up a fraction over the month.

But the troubled international markets of August serve as a reminder that all investing comes with risk. And risk is personal. Because we build your portfolio specifically for you, the more you tell us about yourself — your goals, other retirement assets, and how comfortable you are with risk — the better we can tailor your investments to your unique situation. Please log into your Financial Engines account or call one of our advisors to make sure we have the information we need.

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