Bill to Raise Debt Ceiling Surprisingly Passes

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Devastating natural disasters and jitters over North Korea pushed the market down to start the week after the Labor Day holiday. Stocks tried, but were unable to recover fully over the remainder of the week. Stanley Fischer, the Fed’s number two official, stepped down – a move some investors interpreted as meaning the Fed will stay more accommodative longer. Bond yields and the dollar fell. In a surprise move, President Trump sided with Democrats in passing a bill to raise the debt ceiling, extend government funding for three months, and approve $15 billion in disaster relief for Hurricane Harvey.

Weekly Returns:
S&P 500: 2,461 (-0.4%)
FTSE All-World ex-US: (+0.6%)
US 10 Year Treasury Yield: 2.05% (-0.09%)
Gold: $1,346 (+1.6%)
EUR/USD: $1.203 (+1.4%)

Major Events:

  • Tuesday – US equity markets moved to a T+2 settlement cycle, reducing by one the number of days investors have to wait to access funds when selling stock.
  • Wednesday – Brazil’s central bank cut its benchmark lending rate by 1% to 8.25%.
  • Wednesday – Fat Brands, parent of Fatburger, filed to raise $24 million in an IPO.
  • Wednesday – Toys R Us retained legal counsel to help restructure $400 million of debt due next year.
  • Thursday – Amazon announced it will begin a search for a second US headquarters location, spending up to $5 billion to build and operate it.
  • Thursday – Eli Lilly said it would cut up to 8% of its workforce and invest more in new drugs.
  • Friday – Credit reporting company Equifax said hackers had compromised personal data on up to 143 million US consumers.
  • Friday – Hundreds of thousands of people evacuated in Florida as the state braces for Hurricane Irma.

Our Takeaway

The dollar passed above $1.20 to the euro for the first time since the very end of 2014. US currency is down 9.1% against a basket of 16 others so far in 2017. Declines have come as investors have lost confidence President Trump will be able to push through much of his pro-growth agenda and as the Fed has taken a more dovish tone in the face of low inflation.

The resignation of Stanley Fischer means President Trump will have even greater control over the future of who runs the Fed. Most likely those appointed by him will be hesitant to raise rates aggressively and risk slowing the economy in the second half of his term. Hurricanes Harvey and Irma may also make it more difficult politically for the Fed to raise rates.

All of this is a major reason why international stocks are significantly outpacing US stocks so far this year when measured in dollar terms. It could be that the pendulum has finally swung, but it is important to keep perspective. Just a few years ago the dollar was at $1.40 to the euro and the last 7 years have been absolutely dominated by US stocks in terms of asset class returns.

We prefer to keep a strategic, long term mix between the US and international stocks and bonds and rebalance periodically rather than guess year by year. On the currency front, the current levels actually feel about right and are more balanced on a purchasing parity basis than we’ve generally seen in recent years. It could be that the dollar overshot a little on the way up and is now in a more stable place.

Our thoughts are with all of those impacted by the storms in Texas and Florida.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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