Monthly Economic Update August 2015
Signs of a slowdown in China, the worldâ€™s second largest economy, jolted stocks, bonds, currencies, and commodities in August. During the month, the S&P 500 experienced its worst single day decline since 2011 and all major U.S. market indexes fell into correction territory (down over 10% from previous high). Commodities had their share of pain as well. Dollar strength, cooling in China, and strong supply dynamics in many categories drove 18 of the 22 components in the Bloomberg Commodity index into a bear market (down at least 20%). As the month drew to a close, the oil market experienced its strongest three day rally in a quarter of a century. Absent this move, the most dramatic since Iraqâ€™s invasion of Kuwait in 1990, commodity results would have been far more dismal than a decline of just 0.9%.
For now, most economists believe the U.S. is fairly insulated from Chinaâ€™s turmoil. Indeed, China accounts for less than 1% of U.S. GDP and under 2% of S&P 500 revenues. That said, China is a massive user of natural resources and its slowing has wreaked havoc on commodity prices. Add to that the nationâ€™s mid-month currency devaluation and you have a recipe for a strong deflationary pulse to the U.S. and other areas of the globe. For this reason, there is great uncertainty as to the path of the U.S. Federal Reserve. Just weeks ago, odds favored an interest rate hike on September 17. Following recent turmoil, however, those odds dropped precipitously. For now, Fed member comments suggest a hike is reliant on a reasonably robust labor market report on Friday, September 4, as well as less volatile capital markets. Lacking either or both, the Fed is likely on hold until at least October if not later.
Augustâ€™s Economic Releases
This commentary was written by Robert W. Lamberti, CFA, Vice President of Investments and a Principal of Summit Financial Resources, Inc. Source of performance: MorningstarÂ®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poorâ€™s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgage-backed securities, asset-backed securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, may have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. Securities and Investment Advisory Services offered through Summit Equities, Inc. Member FINRA/SIPC, and Financial Planning Services offered through Summit Equities, Inc.â€™s affiliate Summit Financial Resources, Inc. 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600, Fax: 973-285-3666.