Investment Commentary – October 14th, 2015
Market Indices as of Market Close October 14th, 2015
Dow 16,925 (-5.04% YTD)
S&P 500 1,994 (-3.14% YTD)
NASDAQ 4,783 (0.99% YTD)
Global Dow 2,382 (52 week low 2,203/high 2,644)
10-year Treasury 1.98 % (52 week low 1.64/high 2.50)
Gold 1,187 (52 week low $1,074/high $1,310)
Oil 46.63 (52 week low $38.51/high $81.47)
Weekly Top Themes
Modest levels of jobs growth should promote consumer spending. The September jobs report showed employment has increased 2.0% year-over-year, while average hourly earnings have climbed 2.2%. The broad inflationary pressures still absent and unemployment down to 5.1%, we think these levels should be enough to drive personal income levels and spending higher.
The rise in the dollar and corresponding decrease in energy prices shouldn’t hurt the economy as much as many think. Since these trends became evident in the summer of 2014, three million jobs have been created in the service sector and 150,000 in the manufacturing sector at the same time; the energy sector has lost 70,000 jobs. These numbers suggest that any economic problems have remained well contained.
We expect the U.S. economy to continue to accelerate modestly, but see possible drags. In particular, we think a correction in inventories and a drag from foreign trade will act as headwinds for third quarter growth.
Recent political issues in Washington could lead to economic issues. Last week’s news that Kevin McCarthy dropped out of the running to replace John Boehner as Speaker of the House raises the odds of brinkmanship, procrastination or gridlock over the debt ceiling issue.
It’s not a done deal yet, but the odds of passing the Trans-Pacific Partnership have grown. The agreement is one of the most significant trade deals in years. Some legislative language needs to be worked out, however, and it will probably take months before the deal is voted on in Congress.
Volatility Should Persist, Possibly Creating Opportunities
Over the past couple of weeks, markets have started to show some resiliency, with risk assets such as fixed income credit sectors, commodities and emerging markets showing gains. We remain of the opinion that equity markets must continue healing and expect volatility will persist, but we also think the recent sharp sell-off did not signal the start of a new bear market. Prices are likely to vacillate in the near term, so investors with longer time horizons may want to consider adding to equity positions during times of weakness.
THIS DAY IN FINANCIAL HISTORY
October 14th,1996: A mere 11 months after breaking the 5000 mark, the Dow Jones Industrial Average closes above 6000 for the first time, finishing the day at 6010.00.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Disclosures:
https://blog.lordabbett.com/blog/2015/10/steady_hand_in_volatile_times.html
http://www.nuveen.com/Commentary/BobDoll/WeeklyCommentary.aspx#sthash.YlIp5CMZ.dpuf
http://www.nuveen.com/Commentary/BobDoll/WeeklyCommentary.aspx
http://www.jasonzweig.com/this-day-in-financial-history/
