Markets, Economy

Weekly Kickstart (08/29/2016-09/02/2016)

8/29/16 8:00 AM

iStock_000000499785_Small-1Stocks continued lower last week, with the S&P 500 declining by 0.68 percent to 2,169.04. This was the largest 5-day decline since June but the benchmark index is still up 6.12 percent 2016-to-date, and more than 200 percent above the March 2009 low, not bad for a 7-year-old bull market. The CBOE’s VIX volatility index, often referred to as “investors’ fear gauge,” climbed to a roughly 2-month high last week, not surprising with many institutional traders returning from vacation as we near September, which has historically been the worst performing month for equities. However, the biggest factor behind last week’s uptick in volatility was likely Federal Reserve (Fed) Chair Janet Yellen’s speech on Friday at the annual economic symposium in Jackson Hole, Wyoming.


Indeed, Chair Yellen's remarks indicated that monetary policymakers see an improving economic backdrop, with key measures of employment and inflation nearing the Fed’s overall goals. The one statement by Chair Yellen that the markets probably paid the most attention to was that she believes “the case for an increase in the federal funds rate has strengthened in recent months,” likely an acknowledgement of the growing pressure from hawkish regional Fed presidents. As a result, the U.S. yield curve ended the week near the flattest level of the expansion, with the yield on the 2-year Treasury note rising more than for the 10-year. This price action could signal that the markets see higher odds for a hike this year (up 15 percentage points over the past week) but a still relatively slow pace of subsequent interest rate increases. For retirement investors with relatively long time horizons, though, the focus should be less on trying to predict near-term changes in U.S. monetary policy, and more on building wealth through long-term participation in an employer-sponsored 401(k). Such efforts can be enhanced with dollar-cost averaging, which aims to turn market pullbacks into opportunities, and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.


To recap what we learned about the U.S. economy last week, the positives included that new home sales surged, housing inflation cooled, durable goods orders rebounded, and the number of Americans making first-time claims for unemployment benefits remained near cycle lows. As for the negatives, mortgage and refinance applications declined, existing home sales fell, consumer sentiment deteriorated, both national and regional measures of manufacturing activity softened, and U.S. gross domestic product (GDP) growth in the second quarter was revised lower. This week the pace of economic data picks up, with several important reports on wage growth, consumer spending, housing, productivity, and employment scheduled to be released, along with the potentially marketing-moving August job report from the Bureau of Labor Statistics (BLS) due out this Friday.


What To Watch:









Sources: Econoday, Bloomberg, Twitter, ZH, Advisor Perspectives, FRBG, Goldman Sachs, Wells Fargo, Pension Partners, FRBSL

Post author: Charles Couch