Lindsey Report August

In July the S&P 500 began by setting another all-time-high July 3rd (1985) and then again on July 24th (1989), but then things headed south pretty quickly.  Within five trading days, the S&P 500 had shed 60 points (approximately 3%) and July became the first losing month for the average since January and the largest weekly decline since May 2012 (CNN Money). 

There are a variety of geo-political factors that may have influenced this pull-back.  There is the ongoing crisis in Ukraine, there are the increasing issues going on between Israel and the Palestinians, and then late last week, Venezuela defaulted on their debt payments. 

However, my attention was drawn to domestic news, which I think played the biggest role in this pull-back.  The Commerce Department announced that the U.S. economy had a significant rebound in the second quarter.  They announced that economic growth, as measured by the GDP, was up 4% (MSN Finance). 

Yes, that was a good number: a very good number and a positive surprise.  For instance, A Bloomberg poll of economist only expected GDP to grow +3%.  It’s ironic that good news, not bad news, may have been the biggest contributor to a sharp pull-back in equities.

The reasoning: equity markets are said to be looking six-to-nine months down the road. Therefore, news that affects future expectations should influence markets in the short-term (think: knee-jerk reaction).  In this case, the good economic news caused some concern that Federal Reserve (FED) may being “normalizing” or raising interest rates sooner than was previously expected (Reuters).  

Even though signs of an improving economy could be perceived negatively in the short-term, I want to see continued improvement and signs of stabilization.  Ultimately, I want the economy to be strong enough that the FED can step back, even if that causes more volatility and some downward pressure in the meantime. A healthier economy is the big picture goal!

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual.  To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.  The Standard and Poor’s 500 index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. 

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