03|04|2016

Syria, China, and Japan… What about the U.S.???

In a week that brought diplomatic resolutions to the situation in Syria and great economic data out of China and Japan, the U.S. markets rallied while it had very little economic reason to do so. Granted, much of the correction over the last several weeks had to do with Syria and its oil producing neighbors.  The market welcomed the diplomatic solution with a rally, recapturing much of the market correction.  Even with this great news, however, we always need to be cognoscente of market head winds:

 

  • Monetary policy and Economic Data: The Federal Reserve’s unwinding of monetary stimulus will be announced this week. Many believe that it will begin as a reduction of Treasury purchases with mortgage backed purchases to follow.  The U.S. is still showing signs of slow growth; slow growing retail sales, reduced consumer sentiment, and slow growing producer price index.  All of this point to a GDP for 3rd quarter that should remain 2% bound.
  • Federal Budget non-agreement: As the month of September draws closer to an end, so does the 2013 budget.  The Government needs to come to a continuing resolution by the end of the month in order to extend the budget.  Posturing for the coming 2014 election is likely to ensue and cause this to become an 11th hour resolution, which will cause market volatility.
  • Progress on the appointment of a new Federal Reserve Chair: Larry Summer’s withdrew from contention leaving many to believe that Janet Yellen will be the heir apparent. If this is the case, it should indicate a clear continuation of current Federal Reserve policy.
  • U.S. Housing Market: Housing is seeing friction with increased borrowing rates specifically in the new home market.  The word bubble has resurfaced, but given the recent trend in residential markets, I would associate it more to new home contracts just now catching up to May interest rate increases. Existing home sales saw the correction sooner as they have a shorter shelf life from contract to close.

 

On the bright side we have seen strong economic growth out of Japan and China. Japan has strongly contributed to the global growth metric with a most recent GDP of 3.8%. Also, Chinese exports and factory output have rebounded causing a much needed upward swing in the emerging market asset class.  Domestically we continue to see improving economic data including employment which should continue to fuel the current market environment.

 

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services.  Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.

If you would like an in-depth analysis of your current positions and allocation, please feel free to call Jason Roque at 719-313-7536 to schedule an appointment.

Sources: mfs.com, oppenheimerfunds.com, and morningstar.com

* Financial Action, Inc. is a Registered Investment Advisor.