Market Digest – Week Ending 10/7/2016
Stocks were choppy as investors continue to attempt to predict and digest a likely Fed interest rate hike later this year. A slightly weaker than expected jobs report did not significantly change the outlook for the Fed’s course of action. Both US and international stocks declined moderately for the week, and bonds fell. The British Pound fell 4% as the realities of Brexit are starting to materialize.
S&P 500: 2,154 (-0.7%)
FTSE All-World ex-US: (-0.6%)
US 10 Year Treasury Yield: 1.72% (+0.13%)
Gold: $1,257 (-4.6%)
USD/EUR: $1.120 (-0.4%)
• Monday – Bass Pro Shops announced it will acquire Cabela’s for $5.6 billion.
• Tuesday – The ECB was said to have agreed informally to wind down asset purchases by phasing them down by 10 billion Euro per month, from the current 80.
• Wednesday – The ISM non-manufacturing index rose to 57, the strongest in almost a year.
• Wednesday – The IMF said Deutsche Bank doesn’t need a bailout for now, but that it needs to convince its shareholders it has a viable business model.
• Thursday – Snapchat was said to be planning an IPO valuing it at $25 billion or more.
• Thursday – Twitter shares fell 14% when it was reported that Google and Disney are not planning to make a bid and Salesforce downplayed its interest.
• Friday – The US intelligence community blamed Russia for attempting to interfere with the presidential election by releasing emails hacked from the DNC.
• Friday – The British Pound experienced a brief “flash crash” in Asian trading, before recovering to a 1.4% loss for the day.
It seems hard to believe we’re in the fourth quarter already. But it also feels like a long time since the S&P 500 fell over 10% over the first five weeks of the year. From there, stocks recovered quickly before a small shock around Brexit at the end of the second quarter. Otherwise it has been a very calm spring and summer. It was nice but we don’t expect it to last.
The presidential election is now just a month away and will likely start to influence stock prices more. So far, the ebbs and flows of a Clinton or Trump presidency hasn’t had much impact on markets, and there hasn’t been a clear correlation. We don’t have a prediction for which way the market would go in either case, but expect that there will be a reaction when it is finally settled.
Less important for the country but perhaps more important to stock prices, the Fed’s December meeting is fast approaching. Most likely, the Fed will raise rates by 0.25%. There is also likely to be increased communication about intentions for future moves. A quarter point change really shouldn’t mean much in the big picture, but given that this long bull market has been largely fueled by the Fed’s accommodating policies, stocks are likely to react.
The right kind of volatility can be a very good thing. There is no way to know which way the markets will move over the remainder of the year, but it is likely to get more interesting. If you are managing your own investments, it is probably a good time to check that your portfolio has an appropriate risk profile.