Investment Commentary – August 26th, 2015
Market Indices as of Market Close August 26th, 2015
Dow 16,286 (-8.63% YTD)
S&P 500 1,941 (-5.75% YTD)
NASDAQ 4,698 (-0.81% YTD)
Global Dow 2,306 (52 week low 2,263/high 2,644)
10-year Treasury 2.18 (52 week low 1.64/high 2.66)
Gold $1,123 (52 week low $1,074/high $1,310)
Oil $37.75 (52 week low $40.46/high $92.06)
“The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.”
— Warren Buffett
American business magnate and investor
“U.S. stocks close with biggest gains in nearly 4 years”
The Wall Street rally picked up steam in afternoon trade, as the main indexes closed with the biggest gains in nearly four years, breaking a dramatic six-day slide that left them in correction territory. The main indexes traded within a wide range, with some analysts saying the price action indicates the market is going through a bottoming process. The Dow Jones Industrial Average DJIA, +3.95% jumped 619.07 points, or 4%, to 16,285.51, with all 30 members of the blue-chip index closing with gains. The S&P 500 SPX, +3.90% closed 72.90 points, or 3.9% higher at 1,940.51. The Nasdaq Composite COMP, +4.24% ended the day up 191.05 points, or 4.2% at 4,697.54.
“Equities: A “China Syndrome” Sequel? Not Quite”
The U.S. equity market’s recent selloff seems to have its roots in an exaggerated, indeed panicked, response to negative news out of China. A recent Economic Insights on the Lord Abbett website explains in detail why such interpretations are erroneous. The equity rout in China, though severe, is an entirely unsurprising response to the market’s previous and unsustainable run-up during the previous year.
The falloff in the value of Chinese stocks still leaves them well above where they were only a few months ago. If this decline were a sign of economic collapse, as some of the American and Chinese sellers seem to think, it would have to take equity values down far more than they have fallen. What’s more, those who extrapolate the market decline into an unsupportable weight on the economy’s prospects miss the fact that financial markets play a far less crucial economic role in China than they do in the United States. The slowdown in the Chinese economy is unlikely to turn to recession, gainsaying the fear of “implosion” implicit in the American response to the events on that side of the world. It is, on the one hand, ridiculous to expect China, now much more fully developed than it once was, to resume the rapid
growth of past years.
“As Markets Plunge, Some Value Surfaces”
The recent erosion in equities and other risky assets turned into an all-out landslide last week and Monday morning. The S&P 500 Index suffered its worst one-day fall this year and the worst week in three years and the Dow Jones Industrial Average lost more than 1,000 points on the week.
There was no single catalyst for the brutal selloff, but the spike in volatility is consistent with two trends: slower economic growth and deteriorating credit market conditions.
While investors abandoned stocks and other economically sensitive assets, they piled into safe havens, driving bond yields lower. Short-term yields fell in reaction to the decreasing odds of a September interest rate hike by the Federal Reserve (Fed).
We don’t think this is a prelude to another 2008-style cataclysm. Leading indicators are still positive and lower oil prices and interest rates should help stabilize growth.
For investors, one key takeaway is that the selling has restored value in some areas of the market, particularly in Europe.
“This Day In History: First televised Major League baseball game”
On this day in 1939, the first televised Major League baseball game is broadcast on station W2XBS, the station that was to become WNBC-TV. Announcer Red Barber called the game between the Cincinnati Reds and the Brooklyn Dodgers at Ebbets Field in Brooklyn, New York.
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.
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