Stocks rebounded during the holiday-shortened week as gains in overseas stock markets spurred buying activity, giving the Dow its best week since March. Despite the buying pressure, investors curbed their enthusiasm ahead of the Federal Reserve meeting next week. For the week, the S&P 500 gained 2.07%, the Dow grew 2.05%, and the NASDAQ gained 2.96%.[1]
China's Growth Sputters
Fresh data out of China showed that factory output missed expectations, supporting the view that China's economic growth may dip below 7% for the first time since the global recession. Infrastructure investment also fell, leading many experts to believe that China's central government may be forced to roll out new measures to boost economic growth.[2]
All Eyes on the Fed
This week, the eyes of the world will be on the Federal Reserve as the Open Market Committee votes on whether to raise interest rates for the first time in nearly a decade. The FOMC meets Wednesday and Thursday and will issue their official statement Thursday afternoon. The most recent Wall Street Journal survey of private economists shows that experts are split. Last month, a whopping 82% of economists thought that the Fed would pull the trigger this week; now, just 46% think the Fed will act this month.[3]
There are strong arguments to make on both sides of the issues. On the pro-rate-hike side are the opinions that too much easy money may fuel asset bubbles. Near-zero-rates also leave the Fed without ammunition in the event of another downturn.
On the hold-rates-steady side is the opinion that recent market volatility and ongoing concerns about global economic growth could spark another spate of selling if the Fed moves to raise rates now.[4]
Realistically, if the Fed moves this week to raise rates, they will likely announce a quarter-point raise to target interest rates in the 0.25%-0.50% range. How will markets react to a rate decision? It's hard to say. Investors might view an increase as a vote of confidence in the economy and rally. Alternately, sentiment might sour on fears of a new economic downturn. As always, we're keeping an eye on the situation and will update you as necessary.
ECONOMIC CALENDAR:
Tuesday: Retail Sales, Empire State Mfg. Survey, Industrial Production, Business Inventories
Wednesday: Consumer Price Index, Housing Market Index, EIA Petroleum Status Report, Treasury International Capital
Thursday: Housing Starts, Jobless Claims, Philadelphia Fed Business Outlook Survey, FOMC Meeting Announcement, FOMC Forecasts, Fed Chair Press Conference
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
HEADLINES:
Jobless claims drop by 6,000. The number of Americans filing new claims for unemployment benefits fell last week in the latest sign of health in the labor market. Though weekly claims are notoriously volatile, they have held at historic lows for months now.[5]
Consumer sentiment falls to one-year low. A gauge of Americans' opinions about the economy fell to the lowest level since last September. Americans are concerned about both current and future conditions.[6]
Import-export prices plummet. The prices of U.S. imports fell by the largest amount in seven months as falling gasoline prices and a strong dollar chipped away at import costs. Export prices also fell, possibly because of weaker global demand.[7]
Job openings hit new record high. July job openings hit a new record high of 5.29 million. The rate of voluntary job separations ('quits'), held steady, indicating that Americans feel confident enough to leave their jobs in search of greener pastures.[8]
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
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