Comments on Recent Market Activity
- Volatility in the markets continued this week as major indices reached correction territory before stabilizing later in the week. It’s the first significant market correction that’s been experienced since 2011. Factors at play could be fears of the Ebola outbreak spreading more widely in the U.S., drastic declines in oil prices which could be a deflationary signal and the struggles of policy makers in Europe to spur growth in the stagnant economies of the region. Earnings releases and recent economic data continue to show improvement in the U.S., but markets recently have been trading on sentiment and macro headlines. Case in point, the market declines ceased on news that St. Louis Fed president James Bullard (who is a non-voting member of the Federal Reserve) suggested that although U.S. fundamentals remain strong, it may be “a logical policy response at this juncture to delay the end of QE,” which is set to be terminated at the end of this month.
U.S. and World News
- A second healthcare worker from the Texas Health Presbyterian Hospital has contracted Ebola after caring for Thomas Duncan, who died of the virus earlier this month. The diagnosis and the revelation that the CDC allowed the woman to fly on a commercial flight to Ohio has increased fears of the virus spreading further. President Obama has promised to ramp up the government’s response to Ebola in an effort to contain the spread of the virus. Obama will reportedly appoint Ron Klain as the “Ebola Czar” to coordinate the U.S. response to the virus. Klain’s resume includes being former chief of staff for VP’s Biden and Gore and being general counsel for a large investment organization but does not include any sort of medical background.
- In further efforts to kick start the Eurozone economies, the ECB will reportedly start buying asset-backed securities and covered bonds. Executive Board member of the central bank, Benoit Coeure, said that the purchases could start as soon as the next few days and that “the object is to steer the balance sheet toward higher levels and improve the transmission to the real economy.” Previous efforts in Europe similar to this one have so far failed to generate real economic growth.
- After another volatile week, the markets recouped some of their losses but the S&P 500 still declined 1.00% and closed at 1,887. Similarly, the Dow Jones Industrial Average fell by 0.96% and closed at 16,544. Year to date, the S&P 500 is up 3.71% and the Dow Jones is up 0.60%.
- It was also a very volatile week in the treasury markets which saw the 10 year treasury dip below 2% during some of the panic selling of stocks. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.43% and 2.20%, respectively.
- The spot price of WTI Crude Oil continued to fall this week, dropping 3.32%, closing at $82.97 per barrel. Saudi Arabia has reportedly been telling oil market investors that it is ready to accept oil prices below $90 per barrel, and even as low as $80 for a couple of years it an attempt to retain market share. The world is currently flush with oil supply which has led to the steep decline in oil as well as gas prices which have fallen to a national average of $3.14/gallon compared to $3.37/gallon one month ago (Source: AAA). Year to date, Oil prices are down 11.11%.
- The spot price of Gold increased by 1.22% this week, closing at $1,238.09 per ounce. Year to date, Gold prices are up 3.03%.
- Initial jobless claims fell from last week, coming in at 264,000 vs. consensus estimates of 290,000. Initial claims now stand at a 14 year low. The Labor Department noted no special factors affecting the report. The four week moving average for claims now stands at 283,500, which is the lowest it’s been since June 2000.
- Housing starts rose 6.3% in September vs. expectations of 5.4%. This was a welcome bounce back from last month’s report. Multifamily starts rose 16.7%, while single family starts rose a more modest 1.1%.
- University of Michigan consumer sentiment rose to a reading of 86.4 vs. expectations of 84. The increase was due to better expectations for the future, while the assessment of current conditions was unchanged. The commentary noted that the recent developments have had a limited effect on sentiment thus far and that sentiment may be aided by recently dropping gas prices.
Fact of the Week
- It was 6 years ago (10/16/08) that Warren Buffet wrote his “Buy America, I Am” op-ed article in the New York Times. Buffet encouraged investors to “be fearful when others are greedy, and be greedy when others are fearful. Since he penned this letter, the S&P 500 has gained 130.9% total return through the close of trading Friday 10/17/14.
Please contact a member of the Wealth Management Department if you have any questions about this information.
Rich Gartelmann CFP® – (630) 844-5730 email@example.com
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Ed Gorenz, VP – (630) 906-5467 email@example.com