Is This the ‘New Normal’?

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended October 25, 2013

  • Markets settle into a new “normal”
  • Mixed data for labor, housing and the economy
  • Watching Europe, China and Japan
  • Next week: Wednesday’s Fed statement and lots more data

Markets Settle into a New “Normal”
All sorts of economic data were released last week, but volatility has dropped: rightly or wrongly, market forecasts about the pace of quantitative easing (QE) and earnings growth in the U.S. appear to have coalesced around an outlook for “slow growth with ongoing QE”.

  • Currencies: The dollar dropped about 1/2% against the euro and yen
  • Bonds: The 10-year Treasury yield fell 7 basis points (bps) to 2.53%; the 10-year TIP yield fell 8bps to 0.34%. Key indexes returned 0.5% with credit outperforming as the BoA Merrill Lynch High Yield Index fell 4bps to 442. Foreign sovereign markets were generally quiet.
  • Equities: The S&P 500 was up almost 1% for the week, led by Industrials, Utilities, and Consumer Discretionary. Financials and Energy lagged. The MSCI Europe was up about the same, but MSCI Emerging Markets was down 1% and MSCI Japan fell more than 2%.
  • Commodities: Gold was up 2%; WTI oil was down 1%.

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Washington Strikes a No-Surprise Deal – Now What?

Wardwell’s Weekly Market Report
Observations on the Capital Markets – Week Ended October 18, 2013

  • Washington watch: a no-surprise deal kicked the can down the road
  • Markets celebrated – and more QE likely…
  • Meanwhile, 16 days of government ‘closure’ had little impact on GDP
  • China voiced its currency concerns – loudly
  • Global economic news was generally more upbeat than U.S. news
  • Fed watching . . . and waiting

Washington Watch: A No-Surprise Deal Kicked the Can Down the Road
Congress called a time-out in the budget/debt fight last week, striking a deal to avoid default and fund the U.S. government through January 15, 2014 and raise the debt limit through February 7, 2014. While the parties agreed to budget talks, they did not commit to reaching an agreement (technically, Paul Ryan and Patty Murray, the House and Senate budget committee chairs will begin a process of fiscal negotiations, due to wrap up by mid-December).

Captain Obvious alert: Fitch announced that it is putting the U.S. government’s AAA credit rating under review and China’s top rating agency, Dagong, downgraded U.S. Treasuries.

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Debt Limit Extended, Fed Policy in the Wings – What to Expect from the Markets

Last night Congress reached an agreement to raise the debt limit and end the 16-day shutdown. After all the acrimony and tense negotiations, the deal passed by a comfortable margin with 81-18 vote in the Senate and 285-144 in the House.

Key details of the deal:

  • The government reopens on October 17, 2013.
  • Congress will provide spending authority through January 15, 2014 at the same spending level in effect prior to the shutdown.
  • The debt ceiling is extended until February 7, 2014.
  • Reality check: the real deadline will be sometime in mid-March, according to Goldman Sachs. The agreement allows the U.S. Treasury to utilize bookkeeping strategies known as “extraordinary measures” once the debt limit is breached on February 7th. Continue reading

Equity Markets to Congress: “What, me worry?”

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended October 11, 2013

  • Washington watch: no deal yet, but the parties appear to have begun to look for a deal (as opposed to a crisis they can blame on the other party)
  • A couple of debt ceiling tidbits
  • Last week in the capital markets: money markets tremble, equity markets say “what, me worry?”
  • Obama nominated Janet Yellen to be next Fed chair
  • FOMC minutes showed that the decision not to taper was “a relatively close call” despite the 9-1 final vote; the key reason to delay was “risk management”.
  • Initial unemployment claims jumped 66k to 374k . . . mostly noise
  • Other U.S. data wasn’t really upbeat
  • Next week: waiting for Washington Continue reading

Little Visible Progress on the Budget Shutdown, but Some Inside Baseball In Play

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended October 4, 2013

  • Little visible progress on the budget shutdown, but an important positive development on the debt ceiling goes almost unnoticed
  • Last week in the capital markets: a quiet week
  • U.S. economic data: the economy was still growing when the government shut down
  • But the data wasn’t entirely upbeat
  • Non-political Europe watch: the “weak, fragile and uneven” recovery continues
  • U.S. pension watch: ERISA worked
  • Congress can—and should—raise the debt ceiling before addressing the budget. Boehner’s outlet. Continue reading

The Death of Fixed Income? Not so Fast . . .

Recent market movements have reminded investors that the fixed income market is facing a secular change, after a 30-year-long bull market driven by a continuous decline in interest rates. I believe the announcements of the death of fixed income as an asset class are greatly exaggerated, and in order to face the new reality, fixed income investors and asset allocators need to adopt a significant change of approach. Continue reading

What Happens if the Government Shuts Down and Nobody Notices?

Yes, this is a facetiously philosophical title (what is the sound of one hand clapping?) that pokes fun at the current situation in Washington. And we’re well aware that if Republicans and Democrats can’t reach a compromise in a couple of weeks to deal with the debt ceiling “time-bomb”, none of us will be joking around.

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