Volatility picked up last week due to pressures from lower oil prices and speculation about the timing of the Federal Reserve's next rate hike. This summer has been historically calm for markets, leading markets to trade without big intraday gains or losses. However, Friday broke that streak, possibly ushering in a period of greater volatility as uncertainty looms. For the week, the S&P 500 gained 0.53%, the Dow grew 0.21%, the NASDAQ added 2.31%, but the MSCI EAFE dropped 2.49%.
The market is facing a dilemma based on mixed information and an uncertain political landscape. On the one hand, economic data is neither weak nor strong enough to make the choice to raise interest rates easy for policymakers. On the other hand, the unpredictable nature of the presidential race contributes to market volatility. Though Fed economists have repeatedly stated their intentions to raise rates soon, no one is certain about the timing of this hike.
The Federal Reserve's Open Market Committee will meet this week to decide whether or not to raise interest rates for the first time since December 2015. The Fed has a dual mandate: to maximize employment and keep inflation stable. Headline unemployment is below the Fed's target of 5.0%, but inflation has remained stubbornly below the Fed's long-run goal of 2.0%.
Fresh inflation data suggests a warmer trend. Two measures of inflation, the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) deflator, rose in recent months, indicating that the economy is getting closer to the Fed's target. While the increase in inflation might give pro-hike Fed economists ammunition at this week's meeting, many analysts still don't think the Fed will immediately raise rates.
Markets have been pushing new highs recently, and it wouldn't surprise us to see a return to a volatile pattern in the days and weeks ahead. Uncertainty around economic growth, the November elections, Federal Reserve activity, and a future British exit from the EU could cause investors to become more cautious in the weeks ahead. We'll be closely monitoring the overall market climate and will be in touch if we feel any prudent changes to investment strategies are necessary.
- Monday: Housing Market Index
- Tuesday: Housing Starts
- Wednesday: EIA Petroleum Status Report, FOMC Meeting Announcement, Fed Chair Press Conference
- Thursday: Jobless Claims, Existing Home Sales
- Friday: PMI Manufacturing Index Flash
Consumer sentiment steady in September. A measure of how Americans feel about the economy and their financial prospects remained unchanged between August and September, suggesting households remain upbeat heading into fall.
Retail sales fall unexpectedly. U.S. retail sales fell more than expected in August on weak sales of autos.
Industrial production falls in August. Production in U.S. factories fell 0.4% last month amid a drop in demand for appliances, electronics, and machinery. Cooling demand for big-ticket items could spell trouble this quarter.
Weekly jobless claims rise less than expected. The number of Americans filing new claims for unemployment benefits rose last week, but increased less than economists expected.
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