Investment Commentary – September 23rd, 2015
Market Indices as of Market Close September 23rd, 2015
Dow 16,280 (-8.66 % YTD)
S&P 500 1,939 (-5.84% YTD)
NASDAQ 4,753 (0.35% YTD)
Global Dow 2,265 (52 week low 2,262/high 2,644)
10-year Treasury 2.16 (52 week low 1.64/high 2.57)
Gold $1,130 (52 week low $1,074/high $1,310)
Oil $44.71 (52 week low $37.75/high $90.76)
The Fed Scrubs a September “Liftoff”
Besides leaving the fed funds rate unchanged, the U.S. central bank also signaled a measured pace to future interest-rate hikes.
The long-awaited rate increase—“liftoff”— will have to wait at least another month. Although low unemployment (5.1%) and improving labor conditions provided justification for the U.S. Federal Reserve (Fed) to raise rates, the central bank’s policy-setting arm, the Federal Open Market Committee (FOMC), opted to delay taking the first step to policy normalization at the conclusion of its policy meeting on September 16–17.
Excess factory capacity, weak industrial production, and continued low inflation may have allowed the Fed to postpone the initial increase.
Global financial instability and related investor nervousness likely helped lead the FOMC to conclude that September might not be the best time to initiate a return to normal rates. Indeed, in its post-meeting statement, the FOMC said that “recent global economic and financial developments may restrain economic activity somewhat,” likely putting further downward pressure on inflation.
The U.S. stock market had anticipated the Fed’s decision, with the S&P 500® Index trading little changed shortly after the 2:00 p.m. ET announcement, according to Bloomberg. The benchmark 10-year U.S. Treasury note fell slightly in yield, according to Bloomberg.
If investor nervousness influenced the Fed’s decision, one factor that may help calm future market fears may be the Fed’s projections for future policy moves, released at the conclusion of the September policy meeting. “Dot plot” projections (see Chart 1) indicate a measured approach to raising rates. Such projections may help reduce investor angst by signaling a cautious monetary policy path. An “easy does it approach” from Fed chairwoman Janet Yellen and other FOMC members could help avoid a replay of the market volatility that characterized the three weeks preceding the meeting.
“An Up, Then Down Week”
Stocks experienced a volatile week, with early gains reversing on Friday. In the end, the S&P 500 Index declined 0.15% to 1,958 and the Dow Jones Industrial Average fell 0.29% to 16,384. The tech-heavy Nasdaq Composite Index bucked the trend and held onto a 0.10% gain to end the week at 4,827. Meanwhile, the yield on the 10-year Treasury fell from 2.19% to 2.13%, as its price correspondingly rose.
The big event of the week was the Federal Reserve’s decision to hold off on raising interest rates. However, the result was a reinforcement of investors’ fears regarding sluggish global growth. Still, with the stock selloff of recent weeks, some areas of the market are beginning to look attractive.
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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