Welcome to “The Week Ahead” where each Friday we take a moment to provide our thoughts on what we can expect in markets and the economy for the upcoming week.

Earlier this year, I was able to take my nephew to Camp Snoopy at Knott’s Berry Farm for his fourth birthday. Camp Snoopy is the section of Knott’s dedicated to children under 12 years old and is an introduction to many amusement park rides. As soon as he saw the roller coaster (more like heard the screams from those on board) he wanted to ride it. He had never ridden a roller coaster before and it had been years since I had been on one. As we approached the first drop (ok, more like a dip) he clung tightly to the bar and let out a scream. Feeling that initial gravity change was a slight shock for me as well, as it had been such a long time since I had experienced that sensation. Of course, as we continued to loop around, my nephew became more and more accustomed to the dips – and soon he had his hands up in the air instead of clinging to the bar.

After nine straight record closes for the Dow (+1.8% during that period), the market finally saw the return of volatility as the VIX closed above 16 for the first time in 2017. The S&P 500 finally broke out of its 90-year record low of 15 straight days where trading ranges were in between plus/minus 0.3%. Investors shifted their attention from fundamentals (earnings season) back to macro (U.S./ North Korea), something we saw repeatedly during the European financial crisis. The threat of missiles being launched is always worrisome and local Asian equity markets have bared the brunt of investor outflows so far. Even with the threat of potential nuclear war investors haven’t driven U.S. treasury yields back below 2% (the 10-year dipped to 2.2%) and gold has ticked up less than 1%.

Looking ahead to next week, the FOMC minutes will likely be uneventful for markets but should further confirm the timeline for the remainder of the year. Our base case at this point is an announcement with details at the next FOMC meeting in September, balance sheet normalization beginning in October, and the targeted third rate hike of this year in December. As noted in our previous commentary, the Fed has mostly shrugged off inflation concerns so far this year to focus on normalization and this week’s continued soft inflation numbers (PPI declining 0.1% and CPI at +0.1% for July) could alter upcoming dot plot expectations for 2018 as well as the Fed potentially lowering inflation targets. St. Louis Fed President Bullard cautioned this week that failure to get inflation to the Fed’s 2% target could undermine its credibility as “the misses add up over time.”

Within our portfolios we have incrementally increased our cash position over the last few months and would look to deploy the dry-powder opportunistically. Our tactical views over the next 12-18 months have not changed on this week’s macro events and we expect investors to refocus on the fundamentals and the economy as the summer comes to a close. It’s important to note that the S&P 500 hasn’t experienced a 5% correction or more in over 400 days. At some point that will change. As my nephew noted as we walked around Knott’s that day, there are always bigger roller coasters to ride.

Data deck for August 12-August 18: