Daily Archives: September 2, 2015

Heads Up!

Posted on by

Looking Outside the Headlines

The health of the Chinese economy has been a predominant headline placing downward pressure on global stock markets recently, but if you’ve been caught up in the headlines you may have missed this:

  • The Bureau of Economic Analysis reported last Thursday that real gross domestic product rose at an annualized rate of 3.7% in the second quarter. All the components of gross private domestic investment rose at an annualized combined growth rate of 5.2%. The largest component of GDP, consumer spending, was revised up to 3.1%.
  • Initial Jobless Claims in the US decreased to 271k for the week ending August 22, coming in below its 4 week average.
  • The University of Michigan’s consumer sentiment came in at 91.9 in August slightly below its 4 week average, but still a strong reading.

Overall China’s woes are creating volatility in the near term, but if you focus on the big picture the US economy seems to be improving. Barron’s Gene Epstein pointed out on Friday the following: “WHAT ABOUT THE FALLOUT from weakness in Asia? It has parallels with the summer and autumn of 1998, when an Asian crisis threatened global stability. In the third and fourth quarters of ’98, growth of real gross domestic product in the U.S. accelerated, running an outsize 5.3% and 6.7%. The Asian crisis may even have contributed to that stellar performance by encouraging low energy and commodity prices-factors that are present now. The Stand & Poor’s fell nearly 20% from mid-July through late August of 1998, almost qualifying as a full-fledged bear market. But the market made new highs by late November.”

This is a good example of why it is best to follow an investment discipline and not your emotions. From an investment standpoint we’ve already taken strides to reduce your exposure to energy and basic material companies where the greatest risks seem to lie with a slowing Chinese economy. We will continue to monitor the economy and make improvements when necessary with the objective in mind of reducing downside risk.

The “Heat Map”

Posted on by

Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade is a B (favorable). Gasoline prices continue to drop. Imports have become cheaper due to the strength of the U.S. dollar. Both trends put more money in the pockets of Americans coming into the all-important Holiday shopping season.

THE FED AND ITS POLICIES: We continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. The next big milestone is that Fed meeting Sept. 16-17

BUSINESS PROFITABILITY: This factor’s grade is a C (average).

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 6 due to continued signs of a slowdown in China. These risks deserve our ongoing attention.

“Your Financial Choices”

Posted on by

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is usually hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week, the show will be hosted by Valley National’s Senior Vice President Rod Young CPA/PFS CFP® and Valley National’s Assistant Vice President Jaclyn Cornelius CFP®, EA who will discuss:“Back to School”

Rod and Jackie will take your calls on these topics and other inquiries this week. This show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and Macungie area – or listen to it online from anywhere on the internet.  For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.

The Markets This Week

Posted on by

After a stormy week that saw stocks push into correction territory Monday, down more than 10% from the highs, the market reversed and finished up 1.1% for the five-day span. At one point Tuesday, the sixth straight day of losses, investors endured a 12% intraday drop from 2015 highs. The relief from volatility is unlikely to last, as the guessing game over when the Federal Reserve will raise interest rates goes on, at least until the U.S. central bank’s Sept. 16–17 meeting.

The damage to market sentiment has been done. Stocks fell 6% the previous week on worries about a global growth slowdown induced by China. That drop intensified in the first part of last week, until New York Fed President William Dudley said Wednesday that given market volatility and foreign developments, a hike at the September meeting “seems less compelling to me than it did several weeks ago.”

But just when the market got accustomed to the new idea that the Fed might not hike rates next month, Fed Vice Chairman Stanley Fischer said on CNBC Friday that it was too early to tell whether a hike is more or less compelling.

The Dow rose 183 points, to 16,643.01, last week, while the Standard & Poor’s 500 index gained 18, or 0.9%, to 1988.87. The Nasdaq Composite jumped 2.6%, or 122, to 4828.32.

“It was an exhausting week, where it felt bad on the way down and just as bad on the way up,” says Brian Reynolds, chief market strategist for New Albion Partners. Many investors missed the quick rebound, watching stocks they’d just sold then go back up. “Investors remain jittery and nervous,” he says.

Blame that on discordant Fed chatter. The Fed maintains that a rate decision will be “data driven,” says Kim Forrest, senior equity analyst at Fort Pitt Capital Group. “If the data continue as is, the Fed will be forced to raise this year,” she says. “September is still on the table.” Should the Fed ignore the data, it will lose credibility, she adds.

“Volatility will remain until the [Fed’s] first move,” says Peter Jankovskis, co-chief investment officer at Oakbrook Investments. He expects a hike by year end but probably not in September. To a degree, he says, the Fed likes to keep the market guessing, as it gives its policy moves more influence.

U.S. data show the economy continues to expand with little sign of inflation: Second-quarter gross domestic product was revised up to 3.7% from the previous 2.3% reading. July durable-goods orders rose 2%, the second consecutive monthly rise.

The fed-futures market, which has a pretty good track record in the past two years, puts the chance of a hike in September at less than one in three the Federal Reserve would raise interest rates in September.

(Source: Barrons Online)