Fed Decision, Stocks Drop, Time for Long Term Plan Update

Highlights of this Week’s Update:

1. Reserve your seats today at our upcoming Social Security workshops providing information you need to make an informed decision!
2. NOW is the time to get your personal long term plan updated and reviewed on our new MyWealth system.
3. Stocks continue volatile and we could see more ahead in the next few weeks.
4. Global economic growth concerns and the Fed fuel some of the recent volatility.
5. Fed stands pat on interest rates-for now. Rate hike by year-end?
6. Inflation well below FED target.
7. Another fight in Congress over Government budget and funding.

READ ON FOR FURTHER DETAILS…………………………………………………..

Social Security Workshops Offer Valuable Information

We continue to offer educational workshops pertaining to Social Security retirement benefits, planning, filing, survivor benefits, and more.  A recent survey by AARP and the Financial Planning Association showed a lack of knowledge by many Americans when it comes to Social Security Benefits.  About one-half of the 1,200 future Social Security beneficiaries polled said they were “somewhat knowledgeable” but a mere 9% said they were “very knowledgeable” as to how benefits are determined.  These workshops will answer your questions so you can make informed decisions as to how, when, and what benefits to apply for before you make an election that will determine your own benefits for the rest of your life.  We will also offer to calculate various options for you personally in an effort to provide you with the best possible information so you can an informed decision.  The next scheduled sessions in our conference room are:

Wednesday, September 30^th:  10:30-11:30am

Tuesday, October 6^th:                3:00-4:00pm

Thursday, October 29^th:            1:00-2:00pm

Call us today at 844-9826 to reserve your seats.   Feel free to bring a friend or family member that could benefit from this information as well.

Personal Planning

If you have not met or talked with us to set up your personal long term plan utilizing our new MyWealth system, the time to do so is NOW.  Call us today to set up your personal year-end review, either in person or by phone, so we can set up your own personal financial “website” and get your long term plan in place and up-to-date.  We offer this service at no additional cost and it will provide you with an invaluable resource in monitoring and achieving your personal long term goals.  Please call today to take advantage of this valuable resource!

The Markets:

Last week the major U.S. financial markets ended on a mixed note, with the Dow Jones Industrial Average dipping just .43% for the week, while the Standard & Poor’s 500 stock index dropped 1.36%. For 2015 through last Friday, the Dow is now down 8.46% and the S&P 500 is off 6.20%. (MarketWatch)  The chart below illustrates various global stock indices for 2015 as of Friday, September 25^th. Renewed concerns for global economic growth, especially in China, continued in today’s trading, pushing the U.S. stock indices lower off Friday’s close.

It is not unusual in a typical market “correction”, for the indices to retest their previous lows prior to any sustained movement higher. Today the Dow dipped to a low of 15,981.85 and closed at 16,001.89.  The low for the Dow touched back on August 25^th was 15,666.84, still below today’s session low.  We would expect the possibility of continued market volatility over the next few weeks as we get through the end of September and the first week or two in October.  As we said back in August, it was time to put your seatbelts on and to expect some “turbulence”.   We still anticipate potentially higher stock prices in general over the next 6-8 months and this current downturn could be providing us with a short term buying opportunity looking forward.  We are doing what we can to take advantage of the current environment as we re-balance portfolios periodically and put available cash to work when possible.

Oil prices stabilized during the week, with West Texas Intermediate Crude ending the week at $45.34 per barrel, while gold rose $5.15 per ounce to end Friday at $1,146.65.  Interest rates flattened last week, and the yield for the 10 year U.S. Treasury finished at 2.17%, the same yield as on January 1^st of this year. (U.S. Treasury, CNBC, St. Louis Federal Reserve) Mortgage rates are now at 3.83% for a fixed rate 30 year mortgage, and 2.92% for a 15 year fixed mortgage.  (Bankrate.com)

After the Fed

In the wake of the Fed’s decision not to boost interest rates, markets continued to suffer from short-term volatility. While an ultra-accommodative monetary policy in the form of low interest rates is normally viewed as favorable for stocks, it loses its punch when investors sour on the economic outlook.

In this case, it’s the global economic outlook. As it currently stands, the inability of the Fed to pull the trigger amid the fallout from emerging markets and China is dampening sentiment. Still, Fed officials continue to insist that a rate increase this year remains on the table (Wall Street Journal), including Fed Chief Janet Yellen.

In prepared remarks, she said, “Prospects for the U.S. economy generally appear solid” and the first rise in the fed funds rate “should have only minor implications for financial conditions” and the economy. She’s probably right, and her reassuring remarks were initially greeted enthusiastically by investors. Nonetheless, that didn’t prevent the rate-setters at the Fed from holding off this month amid global concerns.

Low inflation One key economic variable that has acted as a headwind for higher rates, and one discussed and length by Yellen last week has been the low rate of inflation.  Her discussion as to why inflation in the U.S. remains low was quite interesting and practical.

Take a look at the chart above. It highlights how much inflation has deviated from the Fed’s 2% target (solid black line) and breaks out specific categories that have had a significant impact.  The PCE (Personal Consumption Expenditures) Price Index is a broad measure used to track inflation.

Why has the PCE fallen so far below the Fed’s target? While Yellen noted the exercise was imprecise and may vary depending on which inflation model is used, the steep drop in energy prices this year has lowered inflation by roughly 0.75 percentage points from the Fed’s 2% goal. On top of that, the decline in import prices (thanks largely to the rising dollar) has lowered inflation by over 0.50 percentage points.

Government Shut-Down? (Again?)

Congress must pass and the president must sign what’s called a continuing resolution by September 30 to keep the government funded or we’ll witness the first shutdown in non-essential services since 2013. Unlike the last shutdown, the debt ceiling doesn’t have to be raised until later in the year, according to most estimates (Wall Street Journal). While a shutdown creates plenty for political theater and a hefty dose of media reporting, historically, it has had no medium or long-term impact on stocks (NBC, St. Louis Federal Reserve).  Continued short-term market volatility this week would not be surprising as we finish out the third quarter.

We wish you all a great week ahead, and as always, if we can be of further service in any way, please don’t hesitate to call.  Don’t forget-tomorrow, Tuesday, September 29^th is National Coffee Day!

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

 

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