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Weekly Market Update – September 4, 2015

The heightened market volatility continued this week with the Dow and S&P 500 both falling over 2% before pairing the losses midweek, only to fall further on Friday.  The Dow and S&P 500 were down 1.66% and 1.53% on Friday leading to a -3.25% and -3.40% weekly performance.  Relative to equities, our trust preferred securities performed well with a generally flat performance on the week.

It was the recent usual suspects with concern over China’s slowing economy and speculation about the Fed’s September interest rate decision to blame for the market turbulence.  On Tuesday, China’s government sponsored purchasing managers’ index fell to a 3-year low to 49.7 signaling a small contraction in their industrial production.  This disappointing trend was further confirmed by a similar but separate Caixin/Markit purchasing managers’ contraction for the month of August.  Any reading under 50 suggests a contraction in industrial levels and the Caixin/Markit reading was the 6th consecutive month that the reading has been under 50.  Similarly, the United States’ own purchasing manager’s index conducted by the Institute for Supply Management was also a disappointment on Tuesday.  The reading of a 51.1 for the month of August, while signaling an expansion, was lower than expectations and a drop from July’s reading of 52.7.

Friday’s jobs report was notable as it was the last significant economic data that is to be released before the Fed makes its decision about interest rates in two weeks.  While the headline 173,000 increase in non-farm payrolls was disappointing as a reading over 200,000 generally indicates healthy growth, there were numerous positive offsetting factors – July’s job gains were revised up from 215,000 to 245,000, wage growth of .3% month over month and 2.5% year over year beat expectations, and the unemployment rate fell from 5.3% to 5.1%.  This positive news generated a negative market reaction, as it increased the possibility of the Fed raising interest rates.  However, there is still no clear consensus on whether the Fed will ultimately decide to raise interest rates.  The positive jobs report is adding to the recent market volatility.

Important market data to look out for next week includes the Initial and Continuing Jobless Claims on Thursday and the Core Producer Price Index on Friday, which will portend whether inflationary pressures are gaining momentum.  The Michigan Consumer Sentiment reading for the month of September will also be out Friday.

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Ulland Investment Advisors

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