Investor attention was sharply focused on last Wednesday’s policy statement from the U.S. Federal
Reserve and Friday’s debut of a Chinese Internet giant on the NYSE, which was the largest U.S. IPO in history. The data reported during the week continued to paint a muddled picture of the domestic economy, with weekly initial jobless claims hitting an impressive 14-year low, the Philly Fed survey coming in slightly below expectations and housing starts plunging 14.4% in August to badly undershoot expectations. Globally, a referendum that would have resulted in Scotland’s independence from the U.K. was resoundingly defeated, leading to a generally upbeat end to the week for global markets.
A recent trend of very noteworthy moves in currency markets continued unabated during the week. The U.S. dollar’s impressive strength gathered more steam following Wednesday’s Fed announcement, driven by rising expectations for rate hikes in 2015. The yen touched a six-year low against the dollar on Friday after the Bank of Japan pledged to maintain its aggressive stimulus. The euro, meanwhile, saw a continuation of the weakness that has prevailed since the European Central Bank announced a rate cut and targeted-loan program, falling to a 14-month low vs. the dollar.
For the week, the S&P 500 gained +1.25%, the Dow Jones Industrial Average added +1.72%, and the MSCI EAFE (developed international) rose +0.04%.
Here are the 3 stories this week that rose above the noise:
Study: Recovery Eludes Long-term Unemployed
The headline employment statistics have been a bright spot for the economy in 2014. The U.S. economy has added an average of 215,000 jobs per month this year and the unemployment rate has dropped from 6.6% in January to 6.1% in August.
However, the statistics remain discouraging for the long-term unemployed. One out of every five individuals laid off in the past five years remains unemployed. The long-term unemployed are finding it difficult to re-enter the workforce, largely because of diminished skills and structural changes in the labor market. Moreover, many individuals that returned to the labor force after being unemployed for an extended period of time receive lower wages than their previous job and work in roles that are either temporary or part-time.
Behind the Fed’s Dovish Turn on Rates
A recent article from economist Alan Blinder sheds some light on the often shadowy communications of the US Federal Reserve. While markets remain concerned about the timing and pace of eventual interest rate hikes coming from the Fed (currently expected around the middle of next year), the author believes last week’s meeting went for the inflation and interest rate “doves”. He points out that voting rights on the Federal Reserve rotate among its reserve bank presidents and this year’s voters include only two real hawks, leaving them outnumbered.
Among other observations supporting a dovish view of last week’s meeting, Blinder points out that the Fed kept the phrase that declares interest rates would remain at their current low levels “for a considerable time” after its quantitative easing, or asset purchases, end next month.
Global Economy—Eurozone Growth Slows as Chinese Factories Trundle On
Recent data out of China has raised fears that the world’s second-largest economy has slipped back into a period of slowing growth. These fears were somewhat eased by The HSBC/Market Flash China PMI released yesterday that indicated factory growth improved in September and remains in expansion mode.
However, a measure of employment in the report dropped to its lowest level since 2009, a concerning development that may prompt further government stimulus efforts. Separately, the article also summarizes that latest data from Europe, which provides further evidence that growth is troublingly weak in the region. In aggregate, the latest indicators of global growth are sending a message of sluggish growth and fading economic momentum that may prompt additional stimulus measures from monetary authorities in the coming months.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.
