Investment Commentary –August 3rd, 2016

Market Indices as of Market Close August 3rd, 2016
Dow 18,355 (6.01% YTD)
S&P 2,163 (6.00% YTD)
NASDAQ 5,159 (2.64% YTD)
Global DOW 2,384 (2,033 week low/high 2,547)
10-year Treasury 1.50 (1.32 52 week low /2.38 high)
Gold 1,364 ($1,053 52 week low /high $1,384)
Oil $41.12 ($32.85 52 week low /high $54.91)

Dow snaps 7-session skid as oil rallies

The Dow industrials snapped its seven-session losing streak Wednesday and the broader market logged a moderate advance on the back of a rebound in crude-oil futures. However, major indexes traded within a narrow range in what strategists described as a typical August market.

The Dow Jones Industrial Average DJIA, +0.23% climbed 41.23 points, or 0.2%, to close at 18,355, supported by gains in shares of Goldman Sachs Group GS, +1.46% and J.P. Morgan Chase & Co. JPM, +0.12%

The blue-chip index, on Tuesday, marked its longest stretch of weakness in about a year. Still, the fact that the Dow industrials’s multisession retreat is “contained” to 1.4% is encouraging, according an analysis by Bespoke Investment Group.

The Nasdaq Composite COMP, +0.43% advanced 22 points, or 0.4%, to end at 5,159.74.

Bank of England cuts rates, ready for ‘whatever action necessary’ after Brexit vote

The Bank of England cut interest rates on Thursday for the first time since 2009, revived its bond-buying programme and said it would take “whatever action is necessary” to achieve stability in the wake of Britain’s vote to leave the European Union.

The central bank said it expected the economy to stagnate for the rest of 2016 and suffer weak growth throughout next year. It cut its main lending rate to a record low 0.25 percent from 0.5 percent, in line with market expectations.

But it also launched two new schemes, one to buy 10 billion pounds of high-grade corporate bonds and another – potentially worth up to 100 billion pounds – to ensure banks keep lending even after the cut in interest rates.

Sterling fell 1 percent against the dollar following the announcement, while British government bond yields hit record lows and the main share index rose by 1 percent.

Most Monetary Policy Committee (MPC) members also expected to cut Bank Rate again this year to a rate “close to, but a little above zero”, if the economy performed as poorly as forecast.

“Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly,” the central bank said in its quarterly Inflation Report.

JP Morgan thought of the week

Market expectations for US Federal Reserve (the Fed) policy have swung wildly this year. Straight after the most recent Fed meeting, futures implied a 55% probability that the Fed will not raise rates at all this year, a 37% chance of one rate rise and only an 8% chance of two. The statement did little to move market expectations, given that they had already shifted significantly following the strong non-farm payrolls number in June which confirmed that (in the Fed’s words) “near-term risks to the economic outlook have diminished”. Based on these indications, we believe that the Fed will manage one rate rise by the end of the year.


On this day in 1981, 13,000 members of the U.S. Professional Air Traffic Controllers Organization (PATCO), tired of working long hours with obsolete equipment, decided to go on strike. President Reagan threatened to fire any striker still on the picket line through August 5th. Many strikers stood their ground and the President made good on his word, firing 11,500 strikers. Replacement were rounded up, trained, then quickly installed in the vacant posts. These actions were a hit to organized labor and caused employers to become bolder in their actions against union activity.

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 investments.