Once again, the market is sitting idle, and caution seems to be the sentiment of the day. Now that we are several weeks past the Fed announcement to remain status quo with the raising of interest rates, we have noticed a return to the new norm of cautious optimism.
We have not yet seen the election news price into the markets so one might consider this period the quiet before the storm. Our approach is still the same however. Follow our indicators, which are currently favoring stocks followed by commodities and all with a bullish sentiment. This does not automatically mean that all accounts will rally to new and unprecedented highs. It simply means that the sellers have not yet shown up to the party. Heading into the 4th quarter end of a 7 year old bear-market rally has numerous investment professionals leery of what looms ahead, and it certainly would not take much of a shot to set off the heard to a stamped-but for the time being, all seems quiet on the prairie for now.
Sectors and Asset Classes:
- We have noticed that energy is again climbing back into contention behind utilities as the 4th strongest sector in terms of relative strength out of 11 measured with the 1st being technology.
- Overall, the asset class of choice right now is domestic stocks followed by commodities, fixed income, international stocks, cash and then currency.
In terms of selling vs. buying, Lowry's charts indicate we are still experiencing selling sentiment outpacing buying power leaving vulnerability to the downside should demand not resume. All of this is no surprise given additional data such as distance traveled from our last bear market drop of 2008 and the tired state of the current market. In my opinion, we would already be well into the next bear market condition had the Fed and Central banks not intervened to artificially prop up demand for equities.
So for now, enjoy the fall colors as they begin to manifest and try to enjoy some football (Irish, Boilers and Colts are all certainly making the latter very difficult to do this year!)
Why Deutsche Bank Isn't Lehman
WEEKLY UPDATE - OCTOBER 3, 2016
Though the final week of the third quarter ended positively for the major indexes, stocks took a rocky path to get there. A presidential debate, surging oil prices, and concerns about a global bank all took their toll on the market last week. For the week, the S&P 500 gained 0.17%, the Dow grew 0.26%, the NASDAQ edged up 0.12%, but the MSCI EAFE lost 0.87%.
Why did Deutsche Bank affect markets?
Last week, concerns about one of the world's largest banks caused investors to worry that a new "Lehman moment" might spark a new financial crisis. Germany's scandal-prone banking giant is facing financial penalties in the U.S. for the role it played in the financial crisis; the bank's problems are causing key clients to distance themselves and analysts wonder about the firm's financial health. Investors reacted to Deutsche Bank's woes negatively, setting off a 200-point drop in the Dow Jones Industrial Average on Thursday.
A similar loss of confidence in Lehman Brothers in 2008 caused counterparties (major clients) to ask the cash-strapped firm for their money back, triggering its collapse and the beginning of the financial crisis. However, Deutsche Bank is not Lehman, and the world is a different place than it was in late 2008. International financial institutions are not as dangerously interconnected as they were then, and global regulators are much better positioned to respond to situations that arise.
Markets agreed with that assessment and rebounded on Friday. While news from Deutsche Bank may still create headlines, we think the worst has passed. If you have any questions about Deutsche Bank or other financial firms, please reach out to us so we can respond to your concerns.
What does the data say about the economy in the third quarter?
With the third quarter officially in the rearview mirror, analysts are turning their attention to the data. Here's what we know so far:
The third estimate of second-quarter economic growth showed that Gross Domestic Product (GDP) grew a stronger-than-expected 1.4%, up from initial estimates. Even better, some economists think the economy could have accelerated and grown 2.8% in the third quarter, which would put it closer to the pace we want to see. The latest September data on consumer sentiment, an important indicator of future consumer spending, shows that Americans are more confident in their financial prospects, possibly opening the door to higher spending in the critical holiday shopping season.
What might the final months of the year bring?
As we enter the final three months of 2016, markets are contending with some headwinds we're watching. We can expect plenty of headlines around the presidential election as we get closer to November. Political beliefs aside, elections represent a lot of uncertainty, especially with wild-card candidates. Markets may react with relief after election uncertainty resolves; however, concerns about the changes a new administration will bring may also trigger further volatility.
Britain's prime minister announced her intention to begin negotiating the UK's Brexit from the European Union next spring. By 2019, Britain could be a sovereign nation once again, bringing a slew of changes to the EU. Though we don't expect to see too much volatility around the Brexit until next year, it is a political football that could roil markets.
Oil prices might have finally hit bottom and be poised to rally this fall. Major oil producers, including Saudi Arabia and Iran, seem ready to coordinate production to bring oil prices back up. If a pact is made (and held), oil could head back toward $60/barrel next year, which would bring relief to beleaguered U.S. energy companies. However, higher oil process could bite consumers by making gas more expensive at the pump. It's likely that oil prices will play a role in market movements in the weeks to come.
The week ahead is packed with data, including the September jobs report, which may factor into future Federal Reserve interest rate decisions. As always, we'll keep you updated.
Monday:Motor Vehicle Sales, PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending
Wednesday:ADP Employment Report, International Trade, Factory Orders, ISM Non-Manufacturing Index, EIA Petroleum Status Report
New home sales tumble in August. Sales of newly constructed homes fell 7.6% in August after surging in July to the highest level in nearly nine years. The retreat isn't unexpected and further volatility in the housing sector may occur.
Durable goods orders slip. U.S. factories saw fewer orders in August for long-lasting goods like aircraft, appliances, and electronics. However, a core category that represents business investment grew for the third straight month.
Weekly jobless claims edge higher. The number of Americans filing new claims for unemployment benefits rose slightly last week but held at stable levels, supporting the view that the labor market continues to improve.
Pending home sales drop. The number of homes under contract slumped in August, suggesting that home sales fell across the board. Since pending sales forecast future activity, it's likely the drop in housing activity will be felt in the weeks ahead.
Get Helpful IRS Tips on Social Media
Social media isn't just for connecting with family, friends, and your favorite financial professional. The IRS also uses social media to distribute important tax information and help you stay on top of your taxes.
- The IRS uses Twitter to tweet tax-related tips, news, and more. Follow them @IRSnews and @IRSenEspanol. The Taxpayer Advocate Service tweets from @YourVoiceAtIRS.
- IRS2Go is a free app where you can check your refund status, get tax updates, or follow the IRS on Twitter. You can download it free from the iTunes App Store or the Google Play Store.
- The IRS YouTube Channels offer short videos on many tax topics. Videos are available in English, Spanish, and ASL.
Tip courtesy of IRS.gov
Judge Distances Correctly
If you don't know how to judge distances well, your short game will suffer. Here's a great drill for improving your depth perception: Tee up a ball a moderate distance away from the hole. Evaluate the shot and set up as you normally would. Then, close your eyes and walk toward the hole with your putter in your hand. Stop and point at where you think the hole is. Did you get close? If not, repeat the drill until you can accurately judge the distance.
Tip courtesy of Dan Martin, PGA| Golf Tips Mag
Start Your Morning Slowly
While the early bird may get the worm, starting your morning too quickly may be hard on your health. Researchers at Harvard University found that the risk of a heart attack is highest in the morning when blood vessels are constricted after a long sleep. Instead of jumping out of bed every morning, consider taking your time and enjoying a leisurely pace. Incorporating some easy stretches and a short meditation can help you ease into your day and boost your mental and physical health.
Though more studies need to be done, current medical knowledge shows that maintaining and ramping up physical activity early is key to staving off physical and mental decline. Even if you're not as active as you should be, it's never too late to start a fitness regime. Speak to your doctor about creating a customized activity routine.
Tip courtesy of AARP
Use Aerators to Reduce Water Usage
How much water do you really need to complete simple household tasks? Probably less than you think. Similar to a low-volume showerhead, a faucet aerator is a simple gadget that screws onto the end of a faucet and reduces the amount of water that comes out. Your local home improvement or hardware store should stock several sizes. Look for a 2.0 GPM aerator for the kitchen faucet and a 1.0 GPM version for your bathroom sinks.
Tip courtesy of Seattle PI
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
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The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
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