Readings on the U.S. economy over the past week continued to show improvements in employment and wage gains. And while GDP growth is still slow, the upbeat data shifted investor attention toward the Federal Reserve. Analyst expectations for a September rate increase by the FOMC reached 76%, and equities sold off on the news. The Dow Jones Industrial Average declined in every session last week, having its worst slide since the debt ceiling debacle of 2011. And, after an up Tuesday, the broader S&P 500 index also trended lower. Despite the bleak showing of stocks however, earnings for most S&P constituents continue to exceed estimates; manufacturing and factory orders are trending higher and inflation is still benign.
Friday’s announcement that the economy added 215,000 jobs in July also came accompanied with a 14,000 increase for the two months prior, and full time jobs rose to their highest since 2008. Our expectation is that once the uncertainty about Fed policy is gone, U.S. equity valuations are likely to return to fundamentals.
For the week, the Dow Industrials fell by -1.65%, the S&P 500 fared slightly better at -1.18% and and EAFE (Developed International) returned -0.54%
What We're Reading:
Capital Preservation Idea for the Next Market Cycle As Volatility Rises -- pimco.com
Amid episodes of stress and illiquidity, continuing central bank action and changing regulatory frameworks, investors sought refuge through three traditional avenues to capital preservation: investing cash with depository banks, buying U.S. Treasury bills directly and buying shares in regulated 2a-7 money market funds. Until now, these strategies mostly succeeded in preserving capital. However, regulatory and market forces are changing the landscape, and these traditional schemes have become less appealing or simply less available.
Canada Teeters on the Verge of Recession -- CNBC
Amid episodes of stress and illiquidity, continuing central bank action and changing regulatory frameworks, investors sought refuge through three traditional avenues to capital preservation: investing cash with depository banks, buying U.S. Treasury bills directly and buying shares in regulated 2a-7 money market funds. Until now, these strategies mostly succeeded in preserving capital. However, regulatory and market forces are changing the landscape, and these traditional schemes have become less appealing or simply less available.
Energy Revolution is Not Over U.S. -- The Telegraph
If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.
The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.
Articles chosen and summarized by the Tower Square Investment Management team. Tower Square Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Tower Square Investment Management individuals who provide investment management services are not associated persons with any broker-dealer.
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.
