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Quarterly Economic Update – October 2020

Marc Aarons — Wed, 07 Oct 2020 14:21:12 +0000

In this Q3 recap: stocks post further 2020 gains as the economy bounces back and the Federal Reserve announces a shift in its approach to inflation.

A review of Q3 2020, Presented by Marc Aarons

THE QUARTER IN BRIEF

The summer brought an economic rebound and a continuation of the stock market rally that began in spring. In late September, the Federal Reserve Bank of Atlanta’s GDPNow tracker estimated real Gross Domestic Product (GDP) growth of 32.0% for the third quarter. All three of the major Wall Street benchmarks advanced in Q3; the S&P 500 added nearly 8%, ending the quarter up about 4% for the year. Even so, U.S. equities slumped in September as traders worried that the stock market might be getting ahead of the economy.^1,2

In Washington, the Federal Reserve altered its monetary policy stance and forecast low-interest rates for the near future. Hopes for another economic stimulus dimmed in Congress. On Main Street, the coronavirus pandemic remained top of mind, but improvements in hiring, consumer confidence, and retail sales were evident.

Entering the fourth quarter, analysts wondered how adroitly the financial markets might manage some unknowns: a potential uptick in COVID-19 cases in the fall, the pace of vaccine development, the outcome of the presidential election, and undetermined prospects for additional economic support of businesses and households.

THE U.S. ECONOMY

Many positive signals appeared in the quarter. Millions of Americans went to work again; monthly net job growth topped 1.7 million in July and 1.3 million a month later. Unemployment, which had hit 14.7% in April, fell from 10.2% in July to 8.4% in August, and the U-6 rate counting both underemployed and unemployed Americans declined from 16.5% to 14.2%.^3,4

Consumer confidence, as measured by the Conference Board’s monthly index, leaped to 101.8 in August from 86.3 in July. Households kept up their buying—retail sales were up year-over-year through August even though supplemental unemployment benefits expired at the end of July.³

Industries also grew, according to research from the Institute for Supply Management. When ISM’s Monthly Purchasing Manager Index for the manufacturing and services sector surpasses 50, those sectors are judged by ISM to be expanding. ISM’s services PMI was at 58.1 in July and 56.9 in August; its manufacturing index reached 54.2 in July (a month that saw a 6.4% rise in U.S. factory orders) and 56.0 in August.³

Home sales soared as summer began, and although that momentum tailed off, sales did not retreat. Residential resales were up 24.7% in July, and another 2.4% in August. New home buying increased 4.8% for August after a 14.7% July climb. Housing starts and building permits were both up 17.9% in the first month of the quarter, but then they both declined; permits dipped 0.9% and starts 5.1% in the eighth month of the year.³

For more than a century, the Federal Reserve has had two primary monetary policy objectives: to manage inflation and to guide the economy toward a state of maximum employment. Historically, managing inflation has come first. So, it made news on August 27 when Fed Chairman Jerome Powell announced that the central bank would “seek to achieve inflation that averages 2 percent over time,” rather than proactively adjust short-term interest rates when inflation approaches that established target. In other words, it would tolerate a little more inflation than it had in the past as a trade-off for spurring the economy. The Fed kept the federal funds rate in the 0%-0.25% range in the quarter, and its September consensus interest rate forecast showed it expected no change for short-term interest rates through 2022.^4,5

THE GLOBAL ECONOMY

As economies worldwide continued to labor under the coronavirus pandemic, the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) revised their estimates of global economic activity for 2020 and 2021. The IMF sees a 3.0% contraction for global Gross Domestic Product (GDP) this year, with the global economy growing 5.8% next year. The OECD estimates a 4.5% pullback for global GDP in 2020, and then a 5.0% rebound in 2021.⁶

The quarter ended with no agreement yet on a post-Brexit trade deal between the United Kingdom and the European Union, as the post-Brexit transition period ends December 31. Complicating matters, U.K. lawmakers introduced a bill that would disregard conditions for trade with Northern Ireland established as part of Brexit, which the E.U. has hotly protested. U.K. Prime Minister Boris Johnson wants both parties to reach a free trade agreement this month; Johnson is aiming for a pact without quotas or tariffs attached, similar to the arrangement the U.K. has with Canada.⁷

Looking at foreign stock exchanges, some significant quarterly gains stand out. South Korea’s Kospi index rose 11.2% in three months; no other consequential overseas benchmark advanced double digits in Q3l. China’s Shanghai Composite added 7.82%, Taiwan’s TWII 7.70%, Argentina’s Merval 4.69%, Japan’s Nikkei 225 4.02%, and Germany’s DAX 3.65%. On the other side of the ledger, Hong Kong’s Hang Seng retreated 3.96%, and Spain’s IBEX 35 dipped 7.12%. MSCI’s EAFE index, which tracks large companies across developed countries in Europe and Asia, rose 4.90% in Q3.^8,9

T I P O F T H E Q U A R T E R
For some businesses, production and sales slow in the fourth quarter. This is a good time for business owners to allow employees to pursue education and training opportunities relevant to 2021 organizational goals.

LOOKING BACK, LOOKING FORWARD

Stocks powered through July and August, entering historic territory in mid-summer. In particular, August saw a powerful rally. The Nasdaq Composite climbed 9.59% in August, and the Dow Jones Industrial Average gained 7.57%, finishing with its best August since 1984. Advancing 7.01% to cap a 5-month winning streak, the S&P 500 had its best August since 1986. September got off to a good start, with a new record close for the S&P: 3,580.84.^10,11

Then, reservations about the rally surfaced. Traders began to question the sustainability of the summer economic recovery, and whether a fall uptick in coronavirus infections might hurt business and consumer spending. The S&P ended September at 3,363.00, retreating 3.92% for the month. The Dow lost 2.28% in September to fall to 27,781.70, and the Nasdaq gave up 5.16%, declining to 11,167.51.^12,13

The 10-year Treasury yield spent all of Q3 between 0.52% and 0.74%, reaching the top of that range in late August.¹⁴

Wall Street enters the fourth quarter with a bit of uncertainty. The November election results may produce any number of reactions. There are only educated guesses as to when coronavirus vaccines may appear, and how effective they may be. The first reading on 3rd-quarter Gross Domestic Product growth is on October 27, roughly one week before election day.

MARKET INDEX	Y-T-D CHANGE	Q3 CHANGE	Q2 CHANGE
DJIA	-2.65	+7.63	+17.77
NASDAQ	+24.46	+11.02	+30.63
S&P 500	+4.09	+8.47	+19.95

YIELD	9/30 RATE	3 MO AGO	1 YR AGO
10 YR TREASURY	0.69	0.66	1.68

Sources: wsj.com, cnbc.com, treasury.gov, finance.google.com – 9/30/2020

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury yield = projected return at maturity given expected inflation expressed as a percentage.

Federal Reserve officials expect low-interest rates and very little inflation through 2022. Sustained low-interest rates could drive more borrowing and business investment, and improve the outlook for the housing market.

Q U O T E O F T H E Q U A R T E R

“Adversity is always the partner of progress.”

JOHN C. MAXWELL

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprising 50 companies listed on the Taiwan Stock Exchange, developed by Taiwan Stock Exchange in collaboration with FTSE. The S&P MERVAL Index is the most important index of the Buenos Aires Stock Exchange. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The DAX 30 is a blue-chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The Hang Seng Index is a freefloat-adjusted market-capitalization-weighted stock-market index, and the main indicator of overall market performance in Hong Kong. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 developed markets countries around the world, excluding the U.S. and Canada. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.}

^CITATIONS:

^{Federal Reserve Bank of Atlanta, September 25, 2020}
^{CNN Business, September 30, 2020}
^{Investing.com, September 30, 2020}
^{Forbes, September 16, 2020}
^{New York Times, August 27, 2020}
^{Nasdaq.com, September 30, 2020}
^{Associated Press, September 29, 2020}
^{Barchart.com, September 30, 2020}
^{Wall Street Journal, September 30, 2020}
^{CNBC, August 31, 2020}
^{Business Insider, September 2, 2020}
^{12. CNBC, September 30, 2020}
^{Google Finance, September 30, 2020}
^{Treasury.gov, September 30, 2020}

The post Quarterly Economic Update – October 2020 appeared first on Money Managers, Inc..

Quarterly Economic Update – October 2017

Marc Aarons — Fri, 06 Oct 2017 19:42:20 +0000

Presented by: Marc Aarons @ Money Managers, Inc.

A review of Q3 2017

THE QUARTER IN BRIEF
Encouraging economic data and a series of unsettling news headlines vied for Wall Street’s attention in the third quarter, and ultimately, investors were not shaken. The S&P 500 rose 3.96% over three months, getting a lift from upbeat manufacturing and consumer confidence readings as well as earnings news. Away from our shores, the economies of China and the euro area showed improvement, and foreign stock benchmarks rallied along with ours. A slumping dollar offered no big spark for the commodities markets. The residential real estate market looked to be cooling off. The quarter was filled with major news stories, yet the bulls sauntered through the disruptions.

DOMESTIC ECONOMIC HEALTH
Consumer confidence barometers were among the most impressive economic indicators last quarter. By August, the Conference Board’s index topped 120, far above its origin score of 100; it was at 119.8 in September. The University of Michigan’s consumer sentiment gauge ended Q3 exactly where it ended Q2 – at a solid mark of 95.1, rebounding from a July dip to 93.4.

The economy’s two key purchasing manager indices were also elevated well above the 50 level, which also cheered Wall Street. In September, the Institute for Supply Management’s factory PMI jumped to 60.8 – rising above 60 for the first time in 13 years, after readings of 58.8 in August and 56.3 for July. ISM’s service sector PMI came in at 53.9 for July and 55.3 for August (at this writing, the September reading was pending).

Hiring eased during the quarter. Employers added 156,000 net new jobs in August after a July gain of 189,000. The main jobless rate ticked up from 4.3% in July to 4.4% in August, while the U-6 rate, tracking unemployment and underemployment, held at 8.6%.

Inflation showed definite signs of picking up, or at least, nearing the Federal Reserve’s 2.0% target. The Consumer Price Index showed a 12-month advance of 1.7% in July, then 1.9% in August. In both those months, core prices rose 1.7% year-over-year. The Producer Price Index displayed but a 1.9% yearly advance in July, which rose to 2.4% a month later.

With personal wages improving annually at a decent 2.5%, did personal spending increase? Not as much as economists hoped. The gain was 0.3% in July, but merely 0.1% in August.

Other data points from Q3 included a minor retreat for manufacturing production (down 0.1% in July and 0.3% in August), a rise and fall for industrial production (up 0.4% for July, down 0.9% just a month later), and a fall and rise in durable goods orders (which sank 6.8% in July but rose 1.7% for August). Retail sales were 0.3% higher in July and declined by 0.2% for August.

Few investors thought the Federal Reserve would tinker with interest rates in the third quarter, and it did not. It did announce a strategy to cut its $4.2 trillion balance sheet at its September policy meeting. Beginning in Q4, the Fed will allow $10 billion in bonds per month to run off, and the pace will accelerate to $20 billion per month in Q1, $30 billion per month in Q2, etc., to a monthly goal of $50 billion.

Cyber crimes were also conspicuous in the quarter. Credit reporting titan Equifax had its databases hacked, leaving the personal information of more than 140 million Americans at risk. Whole Foods and Sonic also suffered major identity theft breaches.

GLOBAL ECONOMIC HEALTH
News about the European economy was increasingly positive, even as Spain’s Catalonia region threatened to secede and Brexit negotiations continued. By August, euro area joblessness had fallen to 9.1%, an 8-year low; unemployment was down to a record-low 5.6% in Germany. Euro area consumer confidence rose to a high unseen since prior to the credit crisis, as the summer ended. In September, the European Central Bank forecast growth of 2.2% for the region, which could lead the ECB to wind down its longstanding bond-buying effort.

Late in the quarter, China’s official statistics bureau projected 6.9% GDP for the year; Nomura, JP Morgan Chase, and Citibank upgraded their forecasts for China’s 2017 growth to 6.8%. When it came to India, the outlook was far less rosy; as Q3 ended, the Asian Development Bank cut its GDP forecast for India’s current fiscal year by 0.4% to 7.0%, and Fitch Ratings slashed theirs by 0.5% to 6.9%. Particularly alarming was news that the Indian manufacturing sector had advanced only 1.2% year-over-year through July.

WORLD MARKETS
As September’s final trading day ended, 13-week (quarterly) gains were widespread among foreign benchmarks. The MSCI Emerging Markets index surged 7.02% in Q3. Not far behind was the Hang Seng; Hong Kong’s index soared 6.95%. The Shanghai Composite rose 4.90%. MSCI’s World Index posted an advance of 4.39%.

Quarterly improvements also occurred for the CAC 40 in France, which added 4.08%, and the DAX in Germany, up 4.09%. Canada’s TSX Composite rose 2.98%; Japan’s Nikkei 225, 1.61%; India’s Sensex, 1.45%. The United Kingdom’s FTSE 100 gained 0.82%. Australia’s All Ordinaries was an exception, putting up a Q3 loss of 1.11%.

COMMODITIES MARKETS
The U.S. Dollar Index weakened by another 2.66% in the third quarter, yet the broad raw materials market did not rally strongly in response; although, select futures did. Heating oil made the biggest advance among notable commodities, rising 21.9%. Elsewhere on the NYMEX, oil added 12.2%, closing at $51.64 on September 29.

Gold fell after hitting a YTD peak in the quarter, but ended Q3 at $1,284.80, its lowest close in more than a month. The yellow metal rose 3.4% in Q3. Silver prices increased only 0.3% to $16.68 across the quarter. Platinum went up 1.2%; palladium, 12.0%. Amid the base metals, zinc gained 15.0%; aluminum, 11.4%; copper, 9.2%. Cocoa stood out from most other crops with a 7.4% advance. Wheat lost 12.3%; cotton, 8.3%; corn, 4.1%. Natural gas ended up losing just 0.86% in three months.

REAL ESTATE
Prospective home buyers looked around and saw fewer homes on the market in the third quarter, along with fewer homes they could actually afford. According to the National Association of Realtors, the median existing home sale price in August was $253,000. The latest available edition of the 20-city S&P/Case-Shiller home price index (July) showed prices advancing 5.9% annually.

By August, the NAR reported that existing home sales had declined in four of the last five months. They were down 1.3% in July and another 1.7% a month later, with the sales pace reaching a 12-month low. The Census Bureau’s picture of new home buying was no better: a 5.5% stumble for new residential sales in July, a 3.4% dip in August.

Pending home sales also trended downward, falling 2.6% in August after a mild descent of 0.8% for July. Groundbreaking also lessened during the quarter. The Census Bureau identified a 2.2% reduction in housing starts for July, lessening to 0.8% in August. Building permits did rise 5.7% in the eighth month of the year after falling 4.1% during the seventh.

Between June 29 and September 28, fixed-rate home loans grew slightly more expensive, according to Freddie Mac’s Primary Mortgage Market Survey. On September 28, the survey showed the following interest rates: 30-year fixed, 3.83%; 15-year fixed, 3.13%; 5/1-year adjustable, 3.20%. The numbers from the June 29 snapshot: 30-year fixed, 3.88%; 15-year fixed, 3.17%; 5/1-year adjustable, 3.17%.²⁰

LOOKING BACK…LOOKING FORWARD
Tech shares and small caps outran the blue chips across summer, but not by much. During a fine quarter for U.S. stocks, the Russell 2000 nearly matched the gain on the Nasdaq, rising 5.33% and taking its YTD advance to 9.85%. The CBOE VIX volatility index fell 14.94% in Q3, putting its YTD loss at 32.26%. On September 29 at the closing bell, the key benchmarks settled as follows: Dow Jones Industrial Average, 22,405.09; S&P 500, 2,519.36; Nasdaq Composite, 6,495.96; Russell 2000, 1,490.86; CBOE VIX, 9.51.^1,21

% CHANGE	Y-T-D	Q3 CHG.	1-YR. CHG.	10-YR. AVG
DJIA	+13.37	+4.94	+23.49	+6.12
NASDAQ	+20.67	+5.79	+23.28	+14.05
S&P 500	+12.53	+3.96	+17.12	+6.50
REAL YIELD	9/29 RATE	1 YR. AGO	5 YRS. AGO	10 YRS. AGO
10 YR. TIPS	0.49%	0.02%	-0.77%	2.27%

Sources: wsj.com, bigcharts.com, treasury.gov – 9/29/17^1,21,22,23

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

Investors think of the fourth quarter as a “sweet spot” for the market, and they can cite history to affirm their belief. Since 1950, the S&P 500 has advanced in 79.1% of fourth quarters. Its average Q4 performance from 1950-2016: +3.9%. Both the Dow and S&P are entering the quarter on 6-month winning streaks, and bulls seem to be okay with the prospect of a Q4 rate hike and the Federal Reserve thinning its bond holdings. Then again, there is no sure thing on Wall Street. As an example, September has long been characterized as a bad month for equities, but that was not the case this year. Confidence is certainly abundant and anticipation is high as a new earnings season begins, and if history repeats itself, 2017 will go into the books as a strong year for U.S. equities.

Marc Aarons, 714-887-8000 or marc@ocmoneymanagers.com

MMI Disclosures

Citations.

^{1 – quotes.wsj.com/index/SPX [10/2/17]}

^{2 – investing.com/economic-calendar/ [10/1/17]}

^{3 – tradingeconomics.com/united-states/consumer-confidence [10/2/17]}

^{4 – investors.com/news/economy/ism-manufacturing-index-jumps-to-highest-since-2004/ [6/2/17]}

^{5 – instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm [9/6/17]}

^{6 – ncsl.org/research/labor-and-employment/national-employment-monthly-update.aspx [9/1/17]}

^{7 – foxbusiness.com/markets/2017/09/01/us-hiring-cools-off-with-156000-new-jobs-in-august.html [9/1/17]}

^{8 – marketwatch.com/economy-politics/calendars/economic [10/1/17]}

^{9 – nytimes.com/2017/09/20/business/economy/fed-bond-buying.html [9/20/17]}

^{10 – tinyurl.com/y7j6nw9f [9/29/17]}

^{11 – bloomberg.com/news/articles/2017-10-02/euro-area-s-danger-year-morphs-into-burst-of-economic-optimism [10/2/17]}

^{12 – globaltimes.cn/content/1068988.shtml [7/3/17]}

^{13 – financialexpress.com/economy/fitch-lowers-indias-growth-forecast-to-6-9/879410/ [10/2/17]}

^{14 – msci.com/end-of-day-data-search [10/2/17]}

^{15 – news.morningstar.com/index/indexReturn.html [10/2/17]}

^{16 – seekingalpha.com/article/4110889-commodities-3rd-quarter-overview-outlook-q4 [10/2/17]}

^{17 – money.cnn.com/data/commodities/ [9/29/17]}

^{18 – coinnews.net/2017/09/29/gold-silver-rise-in-3rd-quarter-us-mint-bullion-sales-mixed-in-september/ [9/29/17]}

^{19 – marketwatch.com/story/existing-home-sales-fall-in-august-for-the-fourth-time-in-five-months-2017-09-20 [9/20/17]}

^{20 – freddiemac.com/pmms/archive.html?year=2017 [10/1/17]}

^{21 – markets.wsj.com/us [9/29/17]}

^{22 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=9%2F29%2F16&x=0&y=0 [9/29/17]}

^{22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=9%2F29%2F16&x=0&y=0 [9/29/17]}

^{22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=9%2F29%2F16&x=0&y=0 [9/29/17]}

^{22 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=9%2F28%2F07&x=0&y=0 [9/29/17]}

^{22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=9%2F28%2F07&x=0&y=0 [9/29/17]}

^{22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=9%2F28%2F07&x=0&y=0 [9/29/17]}

^{23 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [10/2/17]}

^{24 – foxbusiness.com/features/2017/10/01/market-snapshot-will-stock-market-live-up-to-4th-quarters-reputation-for-strength.html [10/1/17]}

_{^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The All Ordinaries (XAO) is considered a total market barometer for the Australian stock market and contains the 500 largest ASX-listed companies by way of market capitalization. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The CBOE Volatility Index® is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional}}

The post Quarterly Economic Update – October 2017 appeared first on Money Managers, Inc..

What Does the Devalued Yuan Mean for the U.S.?

Marc Aarons — Sun, 16 Aug 2015 05:50:20 +0000

A look at China’s unexpected move & its potential impact.

Provided by Marc Aarons @ Money Managers Inc.

China has surprised global investors by weakening the yuan almost 5%. Its central bank may even weaken it further.1,5

Why did the PRC make this move? Its long-booming economy is in a slump. Most notably, Chinese exports have taken a major fall. In July, they were down 8.3% year-over-year. By depreciating the yuan, China is trying to help its exports maintain their competitive edge.2

Some of China’s other economic indicators have also disappointed lately. Chinese imports have retreated for nine straight months, slipping 6.1% for June and another 8.1% in July. The pace of retail sales in China slowed to a 15-year low in July. Producer prices in the PRC suffered their largest annualized slip since 2009 last month. Lastly, the nation’s economy may grow less than 7% this year – which would be the worst showing since the 1990s.1,2

How may this impact America? The effects could be felt in several areas of our economy, and there could be some positives as well as negatives.

The Federal Reserve might decide to postpone a rate hike. Our central bank appears committed to raising interest rates before the year ends, perhaps as early as next month. A repeatedly devalued yuan might make the Fed think twice about that, however. China has effectively strengthened the dollar versus the yuan, making Chinese imports to America cheaper. That could lower consumer inflation pressure, and since annualized inflation in this country is already low, there would be less incentive for the Fed to raise rates. That would be bad news for savers but better news for some mortgage holders.3

Consumers could benefit more than businesses. As referenced above, a weakened yuan makes imported goods from China less expensive for Americans. Conversely, it also makes it that much harder for U.S. businesses to sell their products in the PRC, as Chinese consumers will have reduced purchasing power.3

You may see less hiring. A mightier greenback relative to the yuan means new hurdles for U.S. businesses in China, which could cut into earnings growth. While scores of American firms sell directly to Chinese consumers, others have strong ties to Chinese factories: look at Apple, which outsources the production of its iPads and iPhones to the PRC. A devalued yuan essentially whittles down the income U.S. businesses create in China and makes outsourced manufacturing costlier for American firms. You can draw a fairly direct line here: less income and lower earnings for American businesses could lead to slimmer payrolls. In particular, firms in the technology, energy and materials sectors could be impacted.1,3

Oil & gas could become even cheaper. Oil is a dollar-denominated commodity, so a newly weakened yuan will test China’s demand for it. A stronger dollar relative to the yuan means that oil and oil-based products will be costlier in China. The Chinese might react by decreasing oil consumption. If China’s demand for oil lessens, that would help to keep oil prices low and American drivers would likely see lower gas prices as well.3

How about the markets? Equities seem to have regained their footing. When the PRC started devaluing the yuan on August 11, Wall Street read the move as a distress signal. The Dow opened with a triple-digit drop August 11 and lost 212 points for the day. On August 12, it took an even bigger fall at the open on news of the yuan weakening again, but it was down just 0.33 points at the close. The week’s subsequent trading days brought no further dives at the opening bell. Looking at the global picture, the DAX, CAC 40, Nikkei 225, and Shanghai Composite were all up 1% or more shortly after they opened Thursday.4,5

As for the forex market, the yuan has certainly sunk versus other key currencies. By August 13, it had lost nearly 3% against the dollar over the past five trading days, and almost 5% against the euro.6

Is a global currency war about to heat up? The People’s Bank of China insists it does not seek to start one. A Barclays client report released August 13 noted the PBC “downplaying the need for a weaker yuan” at a press conference and refuting claims it wanted to devalue the currency at least 10% to support exports. Yi Gang, one of the PBoC’s deputy governors, stated that there was “no basis for a persistent weakening in the yuan… and that the aim of the PBoC is to have the market determine the exchange rate.”5

If the yuan does keep sliding and global markets slump significantly, the Federal Reserve and the European Central Bank could react supportively, providing investors with some reassurance. A weakened yuan presents another challenge to the Fed’s plans to tighten.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com
www.ocmoneymanagers.com

Citations.
1 – foxbusiness.com/markets/2015/08/12/us-stock-futures-slump-as-china-devalues-yuan-again/ [8/12/15] 2 – marketwatch.com/story/chinas-economy-enters-second-half-of-2015-on-weak-note-2015-08-09 [8/9/15] 3 – usatoday.com/story/money/business/2015/08/12/yuan-and-you-how-chinas-devalued-currency-affects-us-consumers/31524925/ [8/12/15] 4 – money.cnn.com/data/markets/dow/ [8/13/15] 5 – usatoday.com/story/money/markets/2015/08/13/market-calm/31610769/ [8/13/15}
6 – money.cnn.com/data/currencies/ [8/13/15]

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