Weekly Market Highlights

S&P 500 brushes off FOMC meeting and Scottish vote on way to new record

  • The FOMC statement was largely unchanged from July; the committee expects to end the asset purchase program at its next meeting in October
  • Scotland voted on Thursday to stay in the United Kingdom

Last Week’s Highlights

  • U.S. Producer Price Index:  Unchanged in August month-over-month and +1.8% year-over-year (excluding food and energy, core PPI increased 0.1%).
  • U.S. Consumer Price Index:  -0.2% in August month-over-month and +1.7% year-over-year (core CPI was unchanged month-over-month and 1.7% year-over-year).
  • FOMC Policy Decision:  The Federal Reserve cut its bond purchases by $10 billion to $15 billion per month, but maintained its commitment to keep interest rates near zero for a “considerable time” after asset purchases end (likely in October).
  • U.S. Housing Starts:  -14.4% to SAAR of 956,000 units in August.
  • U.S. Building Permits:  -5.6% to SAAR of 998,000 units in August.
  • Oil:  $91.65 ($0.62)
  • Gold:  $1,216.60 ($14.90)
  • U.S. 10-year Treasury:  2.59% (0.02%)
  • Dollar:  Euro--$1.28, Yen--109.05 (strengthened against Euro and Yen)
  • VIX:  12.11 (1.20)

What to Watch for

  • Monday 9/22:  U.S. Existing Home Sales
  • Wednesday 9/24:  U.S. New Home Sales
  • Thursday 9/25:  U.S. Durable Goods Orders
  • Friday 9/26:  U.S. 2Q 2014 GDP (third estimate)

Expectations leading up to last week’s Federal Open Market Committee (FOMC) meeting were running high with many anticipating a communication change en route to policy normalization beginning in 2015. Rather, the September FOMC statement was largely unchanged (including the “considerable time” reference) and Federal Reserve Chair Janet Yellen’s press conference remarks were somewhat more dovish than expected. On the other hand, the “dot plot” measuring each committee member’s forecast for the appropriate pace of policy firming moved in a more hawkish direction. Overall, the market was spared from a “taper tantrum-like” event and the continued low inflation that was registered last week (CPI increased 1.7% year-over-year) enables the Fed to stay accommodative until they see fit.

Reunited Kingdom

Outside of the United States, the much anticipated Scotland independence vote ended up being a non-event as 55% of the electorate voted against separation. We view this result as a positive for financial markets as it reduces the uncertainty that would have surrounded a number of key issues related to currency, debt allocation and energy to name a few which would likely have remained unresolved for several years. Unfortunately, it was not all positive news in Europe last week. The results of the European Central Bank’s (ECB) first Targeted Longer-Term Refinancing Operations (TLTRO) came in well below expectations—Europe’s banks borrowed €83 billion compared to a consensus forecast of €174 billion. Another TLTRO will take place in December, however ECB President Mario Draghi will be under pressure to do more (potentially conducting QE in sovereign bonds) following the weak lending results last week.

Avoiding Speed Bumps

Looking ahead, global central bank policy will play a key role in setting the overall investment landscape and investors will continue to focus on the next potential policy directive from the ECB and the timing around Fed tightening. That being said, we believe financial markets moved past two events in last week’s FOMC meeting and the Scottish independence vote which could have represented speed bumps. Even with the S&P 500 reaching new highs last week, we remain constructive on equities and are seeing a number of supports as we approach the last quarter of 2014. In our opinion, low commodity prices, a stronger dollar, improving earnings expectations and accelerating leading economic indicators are contributing to a relatively benign backdrop for equities, particularly in the U.S.

Data Source: FactSet and RIMES

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