Jeff Voudrie’s Week In Review 9/3/2013

Trending Indicators:

                 US Stock Market:                          Confirmed Downtrend               

     Canadian Stock Market:                         Confirmed Downtrend               

                 US Bond Market :                                              Downtrend

In the markets: 

August was a negative month for most markets worldwide.  The Dow Industrials, at -4.5%, and Emerging Markets, at -2.5%, were the worst in their categories.  The best US index for the month of August was the Nasdaq Composite, at -1%.  Among the few winners for August was the Canadian market, where the S&P/TSX Index gained +1.3% for the month on the strength of the energy and materials sectors.

For the week, US market indices were down an average -2%.  Internationally, Developed markets declined an average -1.6%, Emerging markets lost an average -3.9%, and Canada was down -0.8%

The biggest news story that captured the attention of markets worldwide this week was the civil war in Syria – and the threatened US punishment of the Assad regime for its use of chemical weapons.  Money continued to flee Emerging Markets, punishing the Indian Rupee particularly hard.  On Tuesday, the rupee suffered its worst single day of losses in the past 18 years.

In the US, Q2 GDP growth was revised up to 2.5% (from 1.7%), a pleasant positive surprise.  Initial jobless claims fell to the lowest level since November ’07, and the Consumer Confidence rose, nearly to the level of January 2008.  Richmond, Dallas and Chicago Fed manufacturing indexes all rose, although the Milwaukee index fell.  On the negative side, durable goods orders fell the most in a year.  Rising interest rates are taking their toll on home sales – pending home sales and new home sales both fell  in July, mortgage rates rose to 4.8% for a 30-year mortgage, and refinancing applications fell for the 15th consecutive week.

Canadian Q2 GDP was reported at +1.7% annualized, down from the +2.2% level of Q1, which was widely interpreted as meaning the central bank won’t raise rates for at least a year.  The Canadian dollar fell for the third week amid Syrian worries.

Eurozone Purchasing Managers Index (“PMI”) readings were better than expected in August, showing expansion in both manufacturing and services. The composite PMI increased to 51.7.  German manufacturing PMI rose to 52.0, the second month of expansion.  Eurozone consumer confidence increased to -15.6 in August, a two-year high.  France continues to be the weak spot of Northern Europe, however, as its PMIs were below expectations in both manufacturing and services.  Despite France, Europe continues to move out of recession overall.

In Asia, the China manufacturing PMI for August rebounded to 50.1 after three months of contraction.  The Bank of Japan has been executing the strategy known as “Abenomics”; one of its chief goals is to exit deflation and enter into mild inflation, so the report that the Consumer Price Index rose +0.7% year over year was a victory.

(sources: Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, stat.go.jp)

Looking Ahead

 With Labor Day behind us,  trading desks at hedge funds and money managers will be more fully staffed now and we should see trading volumes increase from the anemic levels seen in August. Historically, September is the worst month of the year for equities (although it was up around 3% in September of 2012). That doesn’t mean that we shouldn’t continue to own or hold equities throughout September, but it does heighten the vigilance.

On the bond front, the 10-year US Treasury bond (represented by symbol UST) was down 2.79% and the 20+ year US Treasury (TLT) was down 0.50%. The two bond funds I am currently using also saw declines with one being down 1.06% and the other down 0.17%. With some aggressive strategies moving to cash in the third week or so of August, in general, the accounts have performed better than the overall market.

The situation with Syria may continue to weigh on the market and we also have some political fights coming in the next few months here in the U.S. over the Debt Ceiling, budgets, etc. Overall there is a lot going on, but underneath all of the short-term concerns is the realization that our economy is stabilizing and that we are seeing some growth. And interest rates continue to inch up. As a result, I continue to believe that the risk/reward scenario currently favors equities over bonds.

Have a great day!

financial advisor