Market Update
Market Update September 2016 The Big Picture
The Federal Reserve passed on increasing interest rates. but lowered long-term economic growth estimates, perhaps telegraphing a “lower for longer” interest rate environment. All eyes will be on the Fed again in December, but until then, the focus will be on the election and the 3Q:16 earnings season. The market appears to favor Hillary, so any Trump momentum could cause market weakness. However, earnings season will likely be more impactful. It will be interesting to see how results and company guidance measure up against slowing GDP.
Fixed Income
The Barclays US Aggregate Bond Index was down 0.1% in September. Despite the modest move, the bond market was quite volatile. Throughout the month. The ten-year US treasury bond increased from 1.57%-1.61%, but peaked at 1.73% just prior to the Fed’s announcement.
As indicated last month, we were not surprised by the Fed’s decision due to its potential impact on the elections as we said that December appeared more likely for a rate hike. We think slowing growth rates will trump (no pun intended) any increases in inflation, pushing out any rate hikes until 2017. While bonds could be volatile as the Economy market attempts to handicap the Fed’s perpetual flip flopGDP in the September quarter appears to have accelerated ping, we don’t foresee a dramatic move in bonds by year vs. a lackluster first half of the year, where the economy end. We are watching employment and oil’s impact on grew only about 1.2% on an annualized basis. According consumer prices Fed’s major focal points to the Federal Reserve Bank of Atlanta, GDP for Q3 is expected to come in at around 2.2%, a marked increase, alt- Currency & Commodities hough down from expectations of 2.7% earlier in the Gold prices rebounded 0.4% in September after a tough quarter. Corporate profits remain weak, causing business August and is entering its seasonally-strong period. investment to suffer. We look forward to earnings season Without a rate hike, it should perform well into year end. as some companies will communicate 2017 spending Oil was up 6%, driven by rumors that OPEC will cap or plans. Manufacturing, however, did show a monthly possibly reduce production to balance oversupply. We bounce. After contracting 3.2% in August, the ISM manu- think an agreement is unlikely to occur or to have much facturing index rebounded partially in September, by of an impact if it does take place because production is at 2.1%, due to solid new orders. record highs and would allow exclusions for Libya, Iraq, Consumer confidence continued to build on August’s re- and Iran to raise production. Unless large cuts take place, bound, recording a cycle high. Household consumption is we view these OPEC headlines as trading noise. key to US economic growth as business investment has The U.S. Dollar Index was down 0.6%, most likely due to declined. This rise in confidence appears to be driven by the Fed’s decision to keep interest rates unchanged. Highboth perception of existing conditions as well as future er interest rates attract foreign capital, driving currencies expectations, which is interesting because disposable inhigher. A stronger dollar would likely put pressure on come remains stymied by rising healthcare costs. corporate profits, perhaps another reason the Fed has
Equities
continually pushed out interest rate hikes (they promised four in 2016 and have yet to deliver any).
The S&P 500 dipped slightly in September down 0.1%, the same as in August. The market dipped 2.3% into the Fed decision, but rallied nearly all the way back after the Fed Asset Allocation held rates. We have not changed our overall thesis since we last reported in August. We continue to believe that economic Globally, equity markets were up 1.5%. While Europe will fundamentals warrant caution and remain defensively likely remain weak due to structural inefficiencies and positioned. Should prices pull back or the Fed roll out anthree key elections into 2017, the case is growing for other round of quantitative easing, we would look to get emerging market equities. Although global growth is more aggressive. We think there is a higher-than-normal slowing and few economies, emerging or not, can avoid probability that the election and earnings seasons (which contagion from weakness in Europe and Asia (and to a will overlap) could create some attractive opportunities in lesser extent, the US), demographics and valuations favor some sectors, if not the broader markets., emerging markets over the long term, in our view. Sources Standard & Poor’s Kitco.com Stockcharts.com ISM PPS Advisors, Inc. is independent of American Portfolios Financial Services, Inc. Investment advisory services offered through PPS Advisors, Inc. an SEC Registered Investment Advisor. Securities offered through American Portfolios Financial Services, Inc. Member FINRA, SIPC. Information has been obtained from sources believed to be reliable and are subject to change without notification. The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an investment or strategy based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the possible loss of principal.
The Federal Reserve passed on increasing interest rates. but lowered long-term economic growth estimates, perhaps telegraphing a “lower for longer” interest rate environment. All eyes will be on the Fed again in December, but until then, the focus will be on the election and the 3Q:16 earnings season. The market appears to favor Hillary, so any Trump momentum could cause market weakness. However, earnings season will likely be more impactful. It will be interesting to see how results and company guidance measure up against slowing GDP.
Fixed Income
The Barclays US Aggregate Bond Index was down 0.1% in September. Despite the modest move, the bond market was quite volatile. Throughout the month. The ten-year US treasury bond increased from 1.57%-1.61%, but peaked at 1.73% just prior to the Fed’s announcement.
As indicated last month, we were not surprised by the Fed’s decision due to its potential impact on the elections as we said that December appeared more likely for a rate hike. We think slowing growth rates will trump (no pun intended) any increases in inflation, pushing out any rate hikes until 2017. While bonds could be volatile as the Economy market attempts to handicap the Fed’s perpetual flip flopGDP in the September quarter appears to have accelerated ping, we don’t foresee a dramatic move in bonds by year vs. a lackluster first half of the year, where the economy end. We are watching employment and oil’s impact on grew only about 1.2% on an annualized basis. According consumer prices Fed’s major focal points to the Federal Reserve Bank of Atlanta, GDP for Q3 is expected to come in at around 2.2%, a marked increase, alt- Currency & Commodities hough down from expectations of 2.7% earlier in the Gold prices rebounded 0.4% in September after a tough quarter. Corporate profits remain weak, causing business August and is entering its seasonally-strong period. investment to suffer. We look forward to earnings season Without a rate hike, it should perform well into year end. as some companies will communicate 2017 spending Oil was up 6%, driven by rumors that OPEC will cap or plans. Manufacturing, however, did show a monthly possibly reduce production to balance oversupply. We bounce. After contracting 3.2% in August, the ISM manu- think an agreement is unlikely to occur or to have much facturing index rebounded partially in September, by of an impact if it does take place because production is at 2.1%, due to solid new orders. record highs and would allow exclusions for Libya, Iraq, Consumer confidence continued to build on August’s re- and Iran to raise production. Unless large cuts take place, bound, recording a cycle high. Household consumption is we view these OPEC headlines as trading noise. key to US economic growth as business investment has The U.S. Dollar Index was down 0.6%, most likely due to declined. This rise in confidence appears to be driven by the Fed’s decision to keep interest rates unchanged. Highboth perception of existing conditions as well as future er interest rates attract foreign capital, driving currencies expectations, which is interesting because disposable inhigher. A stronger dollar would likely put pressure on come remains stymied by rising healthcare costs. corporate profits, perhaps another reason the Fed has
Equities
continually pushed out interest rate hikes (they promised four in 2016 and have yet to deliver any).
The S&P 500 dipped slightly in September down 0.1%, the same as in August. The market dipped 2.3% into the Fed decision, but rallied nearly all the way back after the Fed Asset Allocation held rates. We have not changed our overall thesis since we last reported in August. We continue to believe that economic Globally, equity markets were up 1.5%. While Europe will fundamentals warrant caution and remain defensively likely remain weak due to structural inefficiencies and positioned. Should prices pull back or the Fed roll out anthree key elections into 2017, the case is growing for other round of quantitative easing, we would look to get emerging market equities. Although global growth is more aggressive. We think there is a higher-than-normal slowing and few economies, emerging or not, can avoid probability that the election and earnings seasons (which contagion from weakness in Europe and Asia (and to a will overlap) could create some attractive opportunities in lesser extent, the US), demographics and valuations favor some sectors, if not the broader markets., emerging markets over the long term, in our view. Sources Standard & Poor’s Kitco.com Stockcharts.com ISM PPS Advisors, Inc. is independent of American Portfolios Financial Services, Inc. Investment advisory services offered through PPS Advisors, Inc. an SEC Registered Investment Advisor. Securities offered through American Portfolios Financial Services, Inc. Member FINRA, SIPC. Information has been obtained from sources believed to be reliable and are subject to change without notification. The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an investment or strategy based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the possible loss of principal.
