Markets, Economy

Weekly Kickstart (09/12/2016-09/16/2016)

9/12/16 8:00 AM

iStock_000000499785_Small-1Stocks tumbled last week, with the S&P 500 declining by 2.39 percent to 2,127.81. This was the largest weekly loss since February and it slashed the benchmark index’s 2016-to-date gain to just 4.10 percent. Most of the damage was done on Friday when the S&P 500 lost 2.45 percent and the Dow Jones Industrial Average collapsed by nearly 400 points. At the same time, the CBOE’s VIX volatility index, often referred to as investors’ “fear gauge,” spiked to 17.50, the highest reading in 10 weeks and the largest 1-day gain since stocks around the globe were surprised by Britain’s vote in June to secede (Brexit) from the European Union. What was behind this latest selloff in equities? For starters, remarks from European Central Bank (ECB) president Mario Draghi signaled that foreign governments going forward could be less accommodative with monetary policy than expected. More importantly, hawkish commentary from officials at the Federal Reserve (Fed) continued to pour in last week, including a usually dovish Federal Reserve Bank of Boston president Eric Rosengren who said on Friday that “‘a reasonable case can be made’ for tightening interest rates to avoid overheating the economy.”


All of these headlines not only weighed on equities last week but also bonds, with the yield on the 10-year U.S. Treasury note jumping to the highest level since June due to increased expectations for at least one rate hike to be announced by the Federal Open Market Committee (FOMC) before yearend. Although last week’s sudden selloff in the stock market might have been scary for many retail investors, the S&P 500 still ended just 2.85 percent below the all-time closing high hit roughly a month ago. Fears of additional downside for equities, though, are likely to remain elevated in the near future, especially with September historically being the worst performing month for stocks. However, any significant drawdowns could wind up creating attractive buying opportunities for persistent 401(k) participants given how resilient the market has proven to be over longer time horizons. For example, the S&P 500 has experienced an average intra-year decline of more than 14 percent since 1980 but still managed to post a positive annual return for 27 of those past 36 years. Utilizing dollar-cost averaging and regularly consulting with a professional financial advisor can also be invaluable during such periods of heightened market uncertainty. As always, we are here to help with any questions you may have.


To recap what we learned about the U.S. economy last (holiday-shortened) week, the positives included that mortgage and refinance applications rose, credit utilization rebounded, initial claims for unemployment benefits fell to a 7-week low, the number of job openings in America climbed to a new all-time high, and other measures of labor market slack improved. As for the negatives, consumer spending cooled, and gauges of activity in the U.S. services sector, which accounts for a much larger portion of the economy than manufacturing, deteriorated considerably. This week the pace of economic data remains slow but there are still several important reports on inflation, consumers, and retail sales scheduled to be released, along with the latest update on small business owner sentiment from the National Federation of Independent Business (NFIB) due out tomorrow morning.


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Sources: Econoday, Bloomberg, WSJ, CNBC, Twitter, Advisor Perspectives, FRBG

Post author: Charles Couch