Blame recent volatility on the central banks!
After 44 consecutive sleepy, summer days when Barron’s reported the Standard & Poor’s 500 Index opened and closed without a 1 percent move in either direction, the index tumbled last week – and so did indices in other markets around the world. What roused investors from complacency? Some experts pointed their fingers at central banks:
“Three central banks announced their monetary policy decisions during the week and all three maintained the status quo and did not change policy. The news disappointed the markets – they were looking for more stimulus. And, in some cases, good economic data was interpreted as bad news because it meant that there was less of a probability of more stimulus.”
The U.S. Federal Open Market Committee doesn’t meet until September 20, but markets reacted sharply after Boston Fed President Eric Rosengren (whom Thomson Reuters labels as a dove) said, “My personal view, based on economic data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.” After his speech, Reuters reported the odds of a September Fed rate increase rose from 24 percent to 30 percent.
Expectations for market volatility moved higher, too, but markets weren’t too worried. The CBOE Volatility index (VIX) jumped 33 percent on Friday, reaching 16.56, according to MarketWatch. That was a big move, but let’s all remember that volatility in markets should be expected, it means markets are working, and ‘significant’ market volatility is not indicated until the VIX moves above 20.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* This newsletter was prepared by Peak Advisor Alliance of which DeYoe Wealth Management is a Member, and should not be construed as investment advice.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* Stock investing involves risk including loss of principal.
* “Complacency Down; Volatility Up'”
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps and then on “No new stimulus”)