How will the tensions in
Syria affect the markets?
Markets ended
the last trading day of August in the red, with the Dow and S&P 500 posting
their worst monthly declines since May 2012. Trading was slow on Friday as
worries about the escalating Syria situation and the Fed appear to have
discouraged some investors. For the week, the S&P 500 lost 1.84%, the Dow
lost 1.33%, and the Nasdaq lost 1.86%.[1]
Impending
military action in Syria and has contributed to recent market volatility.
President Obama has been drumming up support for a military response to the use
of chemical weapons in Syria, but a final decision has yet to be made. While
the President has emphasized that he is seeking approval for a limited action,
there’s no way to know how long intervention in Syria might take or how it
would affect oil production in the Middle East.[2]
An end to
Federal Reserve quantitative easing is also weighing on markets. Richmond Fed
President, Jeffrey Lacker, a consistent supporter of tapering, said that
current economic conditions support tapering, though other Fed officials have been
more cautious. At this point, the data ahead of the Fed’s September meeting
remains unclear.[3] U.S.
consumer spending barely rose in July, and consumer sentiment retreated from
its six-year high in August, offering cautionary notes as the Fed weighs its
tapering decision.[4] On
the other hand, the number of Americans seeking unemployment claims fell last
week as expected, suggesting that the job market strengthened in August.[5]
Meanwhile, the U.S. economy accelerated in the second quarter because of a
surge in exports, bolstering the case for an end to further quantitative
easing.[6]
Traders will
have a lot of data to analyze this week; on everyone’s radar is the August
monthly employment situation report, which will be released on Friday. Analysts
will also be poring over the ADP jobs report to be released Thursday, which may
give us some hints about Friday’s report. This jobs data is particularly
important because it will be one of the major factors considered at the next
FOMC meeting; if the data is positive, it makes a September taper much more
likely. Several Fed presidents are also scheduled to speak this week, and Fed
watchers will be paying close attention to try and define the Fed’s intentions
ahead of the September 17 meeting.
While it's
disappointing to end August on a sour note, keep in mind that markets are often
thinly traded ahead of a holiday weekend, and volatility can cause major swings
in equities under these conditions. Realistically, continued volatility is
likely in the coming weeks and months as markets grapple with tensions in the
Middle East, an end to quantitative easing, and continued sequestration debates
in Washington. It's important to remember that volatility sometimes provides
investment opportunities and that we vigilantly seek those opportunities for
our clients.
ECONOMIC CALENDAR:
Monday: U.S. Markets closed for the Labor Day
holiday
Tuesday: PMI Manufacturing Index, ISM Mfg.
Index, Construction Spending
Wednesday: Motor Vehicle Sales, International
Trade, Beige Book
Thursday: ADP Employment Report, Jobless Claims,
Productivity and Costs, Factory Orders, ISM Non-Mfg. Index, EIA Petroleum
Status Report
Friday: Employment Situation
HEADLINES:
China factory activity spikes. Manufacturing in China grew at its
fastest pace in more than a year in August. Beijing has instituted a number of
measures to boost economic activity, and the factory data raises hopes that an
economic slowdown may have been arrested.[7]
Gas prices falling this Fall. While Mideast tensions continue to
ratchet up, the effect on oil prices may be muted since the U.S. does not
depend heavily on oil from that region. Analysts believe gas prices will fall
as demand slows down after the summer.[8]
Foreclosures fall in July. There were fewer foreclosures in July
than the same period a year ago as the housing market continues to improve. A
recent spike in mortgage rates could also be affecting foreclosure sales since
they are measured when a foreclosed house is sold or acquired by a bank;
however, the overall trend is towards fewer Americans losing their houses.[9]
Midwestern factory activity rises in August. The pace of business activity in the
Midwest increased in August, and prices hit a nine-month high, indicating that
the region’s economy is expanding.[10]
“Commit to thinking about what you
want, rather than how impossible or difficult a dream may seem.”
– Dr. Wayne Dyer
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[1]
http://briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-august-26-2013.htm
[2]
http://www.cnbc.com/id/100997107
[3]
http://www.cnbc.com/id/100994258, http://blogs.wsj.com/economics/2013/08/29/richmond-feds-lacker-stronger-job-growth-signals-its-time-to-scale-back-bond-buying/
[4]
http://www.cnbc.com/id/100987834, http://www.cnbc.com/id/100987787
[5]
http://www.cnbc.com/id/100996176
[6]
http://www.cnbc.com/id/100996176
[7]
http://finance.yahoo.com/news/china-official-manufacturing-pmi-rises-011610236.html
[8]
http://finance.yahoo.com/blogs/big-data-download/falling-gas-prices-fall-162756779.html
[9]
http://www.cnbc.com/id/100996719
[10]
http://www.cnbc.com/id/100987787
