Investment Commentary – August 12th, 2015
Market Indices as of Market Close August 12th, 2015
Dow 17,403 (-2.36% YTD)
S&P 500 2,086 (1.32% YTD)
NASDAQ 5,044 (6.51% YTD)
10-year Treasury 2.15 % ( 52 week low 1.64/high 2.66)
Gold $1,124 (52 week low $1,074/high $1,325)
Oil $43.37 (52 week low $49.04/high $94.88)
“Wall St. ends flat after late-day rally”
U.S. stocks rallied in afternoon trading to end little changed on Wednesday as energy shares and Apple rebounded from sharp recent losses, offsetting continued concerns about a slowdown in China.
Based on the latest available data, the Dow Jones industrial average .DJI rose 0.27 points to 17,403.11, the S&P 500 .SPX gained 2.12 points, or 0.1 percent, to 2,086.19 and the NASDAQ Composite .IXIC added 7.60 points, or 0.15 percent, to 5,044.39.
“China’s Devaluation Calculation”
In a move to shore up its flagging export sector, China lowered the Yuan’s value against the U.S. dollar by 1.9% on August 11, the biggest such move in nearly 20 years. This action, which essentially is a devaluation of the Chinese currency, sent the U.S. dollar and other currencies sharply higher in response.
As the preliminary reports make clear, the Yuan devaluation speaks to Beijing’s concern about the economy. Claims by the central bank, the People’s Bank of China (PBC), that the move is an adjustment of the currency to market levels are just the usual cover for what clearly is a competitive devaluation to help Chinese exports, still the primary driver of the nation’s growth. The ultimate purpose of the move is to help the general economy, which, as any number of media reports have pointed out, is slowing.
U.S. equities finished in the red last week as large U.S. companies continue to struggle with the competitive headwind caused by a stronger dollar. Curiously though, small caps, which have lower exposure to international sales, are not benefiting. In contrast to U.S. equity markets’ flat performance, Japanese and European stocks continue to advance. On the bond side, U.S. economic data remain mixed, but strong enough for investors increasingly to assume the Federal Reserve (Fed) will raise interest rates this fall. Those expectations are leading to what’s known as a flattening of the yield curve, whereby shorter-term bond yields rise faster than yields on longer-term bonds, as the former sell off.
Accordingly, we continue to believe long-term yields will remain contained, but shorter-term bonds remain vulnerable.
“This Day in Business History”
August 12th, 1981: IBM introduces its Personal Computer (PC). Their new product sold 136,000 units in its first year and a half of release, propelling the company’s stock on an upward climb that peaked later in the decade. IBM, the granddaddy of business computing, was seemingly making a break from the boardroom and looking to conquer America’s homes.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.