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Lindsey Report October 2015


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September was the end of the third quarter and by all accounts it was a pretty lousy month for domestic equities and corporate high yield bonds. The S&P 500 was down 2.6% for the month and 6.9% for the quarter. Corporate high yield bonds (lower credit rated bonds), as measured by the Merrill Lynch High Yield Index, were down over 3% (WSJ).

In recent months, I have noted that global weakness has been at the forefront of “concerns” for our domestic market and that has not subsided. While those concerns are still front-and-center, the pull back in domestic equities, starting in mid-September was “home-grown”.

The Federal Reserve had one of their many policy-making meetings wrap up Sep 17th. Based upon the market’s reaction to Fed Chair Yellen’s comments and actions, markets have retraced much of their August lows.

What was it that the Fed did that was cause for concern? Well, it was more what they did not do. The Fed did not raise their lending rate, which had been largely telegraphed and anticipated. The Fed wants to begin normalizing rates, but they also want to see strength in the economy in order to do so. By not raising rates, they signaled their concern over the U.S. economy and our ability to weather the global slowdown or at least that is how the markets interpreted their inaction.

Not only was it the Feds failure to act that spooked the markets, but also the statements from the Fed Chair. While Chair Yellen did not come out and say that The Fed saw the economy slowing down, her comments were less than encouraging. Basically, she said that they need to wait and see. As I have noted many times in the past, the markets have an affinity for uncertainty and the inaction by the Fed created more uncertainty than it resolved.

Although the initial reaction in the markets was a pull-back and a lousy end to the quarter, the first few days of October have seen the S&P 500 make an almost 3% rebound (as of 10/5/15) (AP). Unlike Chair Yellen, I’m going to leave you with something positive!

 

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.

 

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