Weekly Market Highlights

Washington Figureheads do Best to Elicit Clarity in Volatile Backdrop

  • U.S. 2Q 2015 GDP revised higher to +3.9%
  • Global purchasing manager indices (PMIs) and U.S. employment report headline this week’s economic releases

Last Week’s Highlights

  • U.S. Existing Home Sales: -4.8% to SAAR of 5.31 million units in August.
  • U.S. Durable Goods Orders:  -2.0% in August (excluding transportation, durable goods orders were unchanged).
  • U.S. New Home Sales: +5.7% to SAAR of 552,000 units in August.
  • U.S. 2Q 2015 GDP (third estimate):  +3.9% annualized rate (revised higher from previous +3.7% estimate).
  • Oil:  $45.70 ($1.02)
  • Gold:  $1,145.60 ($7.80)
  • U.S. 10-year Treasury:  2.17% (0.04%)
  • Dollar:  Euro--$1.12, Yen--120.66 (strengthened against Euro and Yen)
  • VIX:  23.62 (1.34)

What to Watch for

  • Monday 9/28: U.S. Personal Income and Outlays
  • Tuesday 9/29: Case-Shiller Home Prices
  • Tuesday 9/29: U.S. Consumer Confidence
  • Thursday 10/1: ISM Manufacturing Index
  • Friday 10/2: U.S. Employment Report

Following the Federal Open Market Committee meeting earlier this month, many in the investment community criticized the Federal Reserve and Chair Janet Yellen—not because they chose to delay the first rate hike in nearly a decade but rather because their decision to do so was not accompanied by a coherent explanation. Yellen was afforded a second chance to clarify the FOMC’s position and outlook with a speech on monetary policy last Thursday. In particular, Yellen delivered two important pieces of information; first, Yellen is among the FOMC contingent who believes it is appropriate to raise rates this year. Yellen also addressed the recent global economic and financial developments that have posed risks to U.S. growth and inflation. Overall, while the FOMC continues to monitor developments emanating out of emerging markets and specifically China, Yellen does not believe the slowdown in foreign growth will materially affect the U.S. economy or monetary policy. As such, we believe a moderate rate hiking cycle beginning in December remains the base case scenario for the FOMC.

Boehner Resignation Implications

The fiscal side of Washington reached a new state of flux on Friday when Speaker of the House of Representatives John Boehner announced that he will resign on October 30. While it has been no mystery that factions of the Republican Party were working behind the scenes to unseat one of their most powerful figures, the timing of Boehner’s resignation has raised a lot of questions with the possibility of another government shutdown looming. Although political uncertainty in the Republican ranks has increased, the threat of a government shutdown has been marginally reduced as we believe Boehner’s resignation will allow him to work on a bipartisan resolution. The more pertinent and uncertain issue is how the debt ceiling will be handled which may fall in large part to Boehner’s successor. Unfortunately for investors, another likely outcome from Boehner’s resignation is an increase in political brinksmanship; if there is any consolation, given the recent examples of government shutdowns and debt ceiling negotiations, we will not be entering unchartered territory.

Washington Spotlight

For now, investors are likely to focus on Washington and the litany of headlines it will create—the FOMC, government shutdown, debt ceiling and election cycle (albeit over a year away). In our opinion, the largest risk to the economy and markets is the debt ceiling which will need to be addressed in the November/December timeframe. The likes of a government shutdown can also be disruptive however the impact on the economy and markets has been fairly contained with respect to previous episodes. Our longer term investment thesis and bias towards risk assets continues to be predicated on a global economic cycle that we believe remains intact and durable enough to weather near term uncertainty. On that front, this week’s purchasing manager indices (PMIs) and U.S. employment report will give another good indication of the trajectory of global growth.

Statistics on the Current State of the Market

S&P 500 Index -1.4% -1.9% -4.8%
Russell 1000 Index -1.6% -2.0% -4.6%
Russell 1000 Growth Index -2.1% -1.4% -0.4%
Russell 1000 Value Index -1.0% -2.7% -8.7%
Russell Midcap Index -2.2% -2.4% -4.7%
Russell 2000 Index -3.5% -3.1% -5.9%
DJ Industrial Average Index -0.4% -1.2% -6.8%
NASDAQ-100 Index -2.3% -1.2% -0.3%
MSCI EAFE Index -3.1% -4.3% -4.1%
MSCI Emerging Markets Index -4.9% -3.4% -15.5%
Alerian MLP Index -5.9% -12.3% -28.2%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index -0.3% 0.4% 1.4%
Barclays US Aggregate Index -0.2% 0.3% 0.8%
Barclays Municipal Bond Index 0.2% 0.4% 1.5%
BofA Merrill Lynch U.S. High Yield Index -1.4% -1.4% -1.3%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index -0.2% 2.5% -4.9%
FTSE EPRA/NAREIT Global Index -0.6% 1.0% -5.0%
Bloomberg Commodity Index 0.9% -2.7% -15.2%
Gold (NYM $/ozt) Continuous Future 0.7% 1.2% -3.3%
Crude Oil (NYM $/bbl) Continuous Future 2.3% -7.1% 14.2%

Data Source: FactSet

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