3 Stories in the global economy that should not go un-noticed
Last week was light on economic data and investors focused on whether or not the Fed is going to start tapering bond purchases to begin winding down its stimulus program after the September FOMC meeting. Markets ended a slow trading week in the red, posting the biggest weekly decline since June.
For the week, the S&P 500 lost 1.07%, the Dow fell 1.49%, snapping a six-week winning streak, and the Nasdaq slid 0.80%.
Here are the 3 stories this week that rose above the noise:
Diversification Isn’t Broken, It Just Takes a While
A recent New York Times article provides a reminder that while diversification may not appear to be working at this precise moment, the benefits are witnessed over longer time periods. “It may seem counterintuitive, but if you have something in your portfolio that you’re complaining about, it’s a good sign you’ve built a diversified portfolio. And if that’s the case, you’re probably complaining right now about international mutual funds and wondering why you aren’t invested 100 percent in the S&P 500. But as Mr. Brown so wisely notes, ‘Five months still to go, anything can happen.’”
Bond Hubris Overwhelms Fed in Riskiest Credit-Market Sectors
Bloomberg published an article detailing an important reason why the Federal Reserve is likely to begin reducing its asset purchases sooner rather than later, which is due to signs of froth in the riskiest parts of the credit market. For example, covenant light loans have once again become common and the lowest-rated parts of the corporate bond market have experienced heavy inflows.
Fed officials have expressed concerns about investors reaching for yield and risk assets experienced a heavy sell-off in May and June after the Fed hinted at winding down its quantitative easing program. However, risk assets have now recovered most of those losses and concerns about signs of excessive risk taking may ultimately be the deciding factor in the timing and pace of the Fed reducing its asset purchases.
U.S. Retail Sales Quicken as Price Pressures Stay Tame
Retail sales rose 0.5 percent in July, which is the fastest pace seen in seven months. Retail sales, which don’t include cars, gas and building materials, account for about 70 percent of national output. Economists expected growth of 0.3 percent. The faster-than-expected pace of growth could enable the Fed to begin its tapering of asset purchases sooner rather than later.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
