/perspectives/weekly-viewpoint/the-‘buyer’s-strike’-continues

The ‘Buyer’s Strike’ Continues

The major market indices finished the week lower as global economic worries kept many investors close to the sidelines. Investors did however get some clarity on two issues (Fed policy & China) that have been plaguing the market over the past couple weeks.

September 28, 2015    |    By Mike Schwager

Performance for Week Ending 9/25/15:

The Dow Jones Industrial Average (Dow) fell 0.43%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 1.54%, the Standard & Poor’s 500 Index (S&P 500) declined by 1.36% and the Nasdaq Composite Index (NASDAQ) shed 1.05%. Sector breadth was negative as 7 of the 10 S&P sector groups finishing lower. The Healthcare sector (-5.77%) was the worst performing while Utilities (+1.24%) was the best.

Index* Closing Price 9/25/2015 Percentage Change for Week Ending 9/25/2015 Year-to-Date Percentage Change Through 9/25/2015

Dow

16314.67

-0.43%

-8.46%

Wilshire 5000

20019.15

-1.54%

-5.97%

S&P 500

1931.34

-1.36%

-6.20%

NASDAQ

4686.50

-2.92%

-1.05%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 9/21/15 – 9/25/15

The major market indices finished the week lower as global economic worries kept many investors close to the sidelines. Investors did however get some clarity on two issues (Fed policy & China) that have been plaguing the market over the past couple weeks. Speaking in Massachusetts on Thursday night Federal Reserve Chair Yellen noted that the central bank is on track to raise interest rates this year, signifying its confidence in the economy. Yellen laid out a detailed argument for raising rates in the coming months, stating that inflation should trend gradually higher over the next few years. Global markets have been extremely volatile since the recent FOMC meeting, with investors interpreting the central bank’s caution and inaction as worrying sign about the state of the global economy.

In terms of China, though anecdotal in nature, apparel and footwear giant Nike reported better than expected quarterly results noting that revenue from China grew at a robust 30% for the quarter. Management also noted that while they are cognizant of the macroeconomic volatility in China, their brand has never been stronger and the marketplace has never been healthier. The Nike results seem to suggest that investors may need to broaden their view on China’s economy and not be so focused on sectors that are heavily exposed to industrials and/or commodities.

It seems one of the most troubling issues for the market is a sheer lack of positive catalysts. While the fundamental landscape certainly doesn’t appear as gloomy as the markets are making it out to be, it may take some time before the markets get better clarity on China’s economic situation and Fed policy. In the meantime, the process of price discovery will likely continue as investors try to gauge what has been discounted in the market and what is likely to come to fruition in the weeks/months ahead.

This coming Wednesday marks the end of the third quarter and in turn will put the focus on the upcoming earnings season. Heading into reporting season expectations are fairly muted reflecting weakened global growth, currency fluctuations, and weak oil prices. With the bar set fairly low, there could be room for upside surprises. Seasonals will also begin to turn more favorable in the coming weeks. Looking at average price action of the S&P 500 over the past thirty years, the market tends to stage a rally during the fourth quarter that often starts during the first half of the October – stay tuned.

Investor Sentiment Remains Muted:
Last week the American Association of Individual Investors (AAII) reported that Bullish sentiment in the most recent period fell to 32.1% while Bearish sentiment came in at 28.7%. Interestingly, Neutral sentiment has been moving higher over the past several weeks and currently stands at 39.2%. While Bulls still outnumber Bears, the rise in Neutral sentiment suggests high levels of uncertainty in the market place as investors ponder Fed policy and the outlook for the global economic growth.

The Week Ahead
Fed speeches and the payroll report will be the focal points during the coming week. On Friday, the September jobs report will be released and according to Bloomberg data economists are expecting non-farm payrolls to rise by 200K while the unemployment rate is expected to hold steady at 5.1%. Other economic data of note includes personal income and spending, pending home sales, the July Case-Shiller home price index, the Conference Board’s consumer confidence index, the ISM manufacturing index, and construction spending. Several Fed heads will be out and about during the week including presentations by Fed chair Yellen on Wednesday and Fed vice chair Stanley Fischer on Friday. Third quarter earnings reports will continue to trickle out, with four members of the S&P 500 slated to report results.


Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no gua rantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.


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