Highlights of This Week’s Update:
- After a downturn in stock prices at the end of July, the major U.S. stock indices produced a third consecutive week of overall gains.
- Indications from the FED show no real change in current policy and possible low interest rates for the foreseeable future.
- Economic signals continued mixed, with the hope of modest growth indicated.
- Oil prices drop as global tensions ease, helping push prices at the pump lower.
- We have not changed our outlook and feel we still could see a possible downturn for the equity markets sometime in the months ahead as we finish out the summer.
Read on for Further Details…………………………………………………………………
The major U.S. stock indices managed a second week of gains, with the Dow up 2% and the Standard & Poor’s 500 stock index rising 1.7%. For the year, the Dow is now up 2.6%. (MarketWatch)
Last week interest rates, based on the yield for the 10 year U.S. Treasury, inched slightly higher, with the yield ending last Friday at 2.4% compared to 2.34% the week before. (U.S. Treasury) Mortgage rates held steady for the most part, with the 30 year fixed rate at the 4.125%-4.28% range, and the 15 year fixed rate ending the week at 3.17%. (Bankrate.com)
Since Janet Yellen took over as chair of the Federal reserve early this year, her focus has been on cutting back on the Fed’s monthly bond purchases while keeping interest rates low as a way to stimulate economic growth and boost employment. Her thinking – there’s still plenty of slack in the labor market (defined as able-bodied men and women who want to work, have the skills to work, but can’t find employment), and the Fed’s monetary policy can boost economic activity and rev up employment growth.
She has remained noncommittal on how the improving job market might affect monetary policy, but she is beginning to carefully consider the idea that slack in the labor force is dwindling. If that is the case, she may be laying the groundwork for an eventual hike in interest rates. She is quick to point out that measuring slack in the labor force is imprecise, and “there is no simple recipe” when it comes to setting a course for monetary policy given the many complexities and changing dynamics in the labor force.
Moderate economic growth, rising corporate profits (Thomson Reuters), and low interest rates remain the standard “go-to themes.” But we’ve also seen tensions recede in Ukraine, which has helped calm the markets for now.
Mixed signals continue to appear as far as the overall direction of the economy including the real estate markets. This has investors keeping a close eye on the Fed’s policy with hope they will act if the economy and labor market deteriorates moving forward.
In the meantime, the price of crude oil has been coming down thanks to a number of factors. U.S. oil production is at its highest level since 1986, according to data from the Energy Information Administration.
Easing geopolitical tensions between Russia and Ukraine has also helped. Moreover, production from Libya has recently increased (Thomson Reuters), and U.S. airstrikes in Iraq have eased worries over supply interruptions.
Gasoline prices have responded across much of the nation, with the price for regular gasoline down nearly 13 cents in the last month to $3.429 per GasBuddy.com.
We continue to monitor the overall markets and still see equities/stocks overvalued and prices stretched as the market indices continue to push higher. We will limit our stock/equity exposure to individual stocks rather than mutual funds for now, and still think we could see some type of stock market decline in the coming months. We feel there is a good chance of a market downturn sometime this fall based on the current indicators we follow, and will be watching this quite closely. In the meantime, all risk levels still have an underweighted allocation to stocks/equities at this time. Our diversification and other assets have served us well so far this year, especially given the overall risk. We will keep you advised as to any changes as we move out of the summer months and into September.
We appreciate the privilege of serving each and every one of you, and as always, please don’t hesitate to call if you have any questions or if we can be of further service in any way.
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.