China Surprises, Stocks Notch Small Gain, Oil Falls

Highlights of this Week’s Update:

1. Seats still available for upcoming Social Security workshops. Call today to reserve your seats!
2. Major stock indices notch small gains after another volatile week.
3. Oil falls again on fears of slowing global economies
4. China surprises and devalues their currency.
5. Big picture: stock prices in U.S. still lofty, but economic fundamentals continued improving.

READ ON FOR ADDITIONAL DETAILS……………………………………

Social Security Workshops

Don’t forget to call today to reserve your seat(s) at one of the upcoming informational sessions covering most all aspects of Social Security benefits and planning.  Topics such as when to apply, when to apply and suspend, when to take benefits, available benefits to survivors/divorcees, and much more.  These workshops will be held in our office conference room at the following dates and times:

 

Wednesday, August 26^th:      3:00-4:30PM

Friday, August 28^th:              10:30AM-12:00Noon

Wednesday, September 2^nd: 10:30AM-12:00Noon

Call us at (405) 844-9826 today for your reservations and bring a friend/relative that could also benefit from this important information.

The Markets:

The major U.S. stock indices remained volatile last week with the surprise devaluation of the Chinese currency, the yuan.  By the time the week ended, both the Dow Jones Industrial Average and the Standard & Poor’s 500 stock index were able to notch small gains from the previous week.  The Dow was up .60%, but still down 1.94% so far in 2015, while the S&P 500 rose .67% and has risen 1.59% so far this year through Friday’s close.  (MarketWatch)

Interest rates were fairly flat for the week, with the yield now at 2.20% for the U.S. 10 Year Treasury.  This compares with 2.17% at the start of this year.  (U.S. Treasury)  The national average rate for a 30 year fixed mortgage ended Friday at 3.99%, while the 15 year fixed mortgage was at 3.02%.  (Bankrate.com)

Oil prices slid $1.57 and ended the week at $42.18 per barrel for West Texas Intermediate Crude.  Gold rose $24.75 to close at $1,118.25 per ounce.  (St. Louis Federal Reserve, CNBC)

China’ Surprise Move

China landed back in the headlines again last week. This time, it wasn’t due to a failing stock market but the decision by the government to devalue its currency, the yuan.  While the yuan fell by just 1.9% last Tuesday (small by devaluation standards), it was the largest drop in 20 years (Reuters, Wall Street Journal). In a statement on its website, China’s central bank billed the change as a market-oriented reform and a one-time move.

Then on Wednesday, the yuan fell another 1.6% and 1.1% on Thursday (Wall Street Journal, Bloomberg). One-time and market-oriented are, in essence a contradiction. But the timing is extremely suspicious and being viewed as a way to boost exports and prop up its sagging economy.

The surprise decision raised nagging fears that China’s economy is slowing too quickly, and the decision on its currency is an act of desperation. That rattled short-term investors.  More importantly, it could also be a sign that Chinese authorities are losing control of their ability to manage growth, which also sent shares lower.

But compared to what we’ve seen in the yen and the euro, where the dollar is up 18.4% and 24.0% (St. Louis Federal Reserve) since the end of 2013, respectively, the yuan’s drop is minor.

U.S. investor perspective

Today, stocks are more richly valued than a few years ago. In such situations, short-term traders usually don’t take added uncertainty in stride. It’s a “shoot first, don’t ask questions” approach.

With anxieties about China growing, we’re witnessing renewed pressures on commodity prices, including oil. It’s a benefit to consumers, but it adds to nagging fears that global growth is slowing – a short-term negative for stocks.

But U.S. exports of goods to China amounted to just 0.7% of U.S. Gross Domestic Product last year (U.S. BEA). According to Goldman Sachs, sales of S&P 500 companies to China totaled just 2.0% in 2014. Yes, there are some high-profile firms that do a significant amount of business in China but 2% is barely enough to move the needle.

In the meantime, U.S. fundamentals remain reasonably solid. The economy continues to expand at a modest pace, interest rates are still very low, and companies continue to buy back their shares, according to the latest data from Standard & Poor’s.

While changes in sentiment can create volatility – in some cases extreme volatility, the medium term and longer term are heavily influenced by fundamentals at home.  We saw that in the short but violent selloff in 1998 and the unsettling volatility and drop in shares during 2011. Every situation is unique, but when the international dust settled, so did the volatility in stocks.

We wish you all a great finish to this summer, and please don’t hesitate to call if you ever have any questions or if we can be of further service in any way.  Also, be sure to call today to schedule your review and get set-up on our new MyWealth system if you have not yet done so.

God Bless,

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.

⁵ New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.

⁶ London Bullion Market Association; gold fixing pricing at 3 p.m. London time; Prices can and do vary; past performance does not guarantee future results.