Week of August 15, 2016
The US markets extended their gains as the Dow Jones Industrial Average, NASDAQ Composite and the S&P 500 closed the week up slightly, setting new record highs in the process. International markets bounced back, posting some strong returns for the week after a lackluster start to August.
Japan's Nikkei 225 Average and China's Shanghai Composite were up 5.09% and 2.49%, respectively, while the broad MSCI Europe Index was up 2.35% for the week. Our commentary begins with a look at the markets and their new record highs as well as recent volatility. This is followed by a review of the Bank of England's recent interest rate cut. Given that we are in the midst of the summer Olympics, we conclude the weekly commentary with a short history of the one of the games' most dangerous events, the "death vault".
New All-Time Highs
The S&P 500, Dow Jones Industrial Average and the NASDAQ Composite all notched new, record-breaking highs last Thursday on rising oil prices and strong US retail earnings reports. For context, the last time all three major US indices all closed at record highs on the same day was in December 31st of 1999. Brick-and-mortar retail stores posted better-than-expected sales, driving companies such as Macy's and Kohl's up double digits on Thursday while energy companies benefited from a tailwind as oil experienced its largest single day gain since July 12th. US crude rose 4.39% to $43.49 per barrel and the International Energy Agency said the current supply glut is likely to diminish over the coming year.
In a year where investors experienced the worst start to trading in history followed by all-time market highs eight months later, it may be hard to believe that the CBOE Volatility Index, a measure of implied volatility in the S&P 500 index, has hit a multi-year low. Indeed, the CBOE Volatility Index, or VIX as it is more commonly known, was down as low as 11.39, hitting a fresh two-year low and down more than 40% from 2016's peak. Furthermore, a review of average daily trading swings in the S&P 500 indicate that July experienced the lowest daily highs and lows since November 2014. What's more, trading volume was much lighter in July as well. A review of last month's average daily volume, or the average number of shares traded during the month, showed a drop of nearly 1.7 billion shares as compared to the rest of the year and a 29% drop from the tumultuous start of 2016.
Source: Morningstar Direct
Bank of England Rate Cut
The Bank of England cut the country's key interest rate for the first time in seven years, notching a new low in the bank's 322-year history as it went from 0.5% to 0.25%. Furthermore, the central bank restarted its quantitative easing policy, announcing that corporate bonds will be included when the bank begins buying bonds in September. In its statement, the Bank of England cited the Brexit results and its impact on their growth forecasts which were reduced from 2.3% to 0.8% over the next 12 months. Mark Carney, the governor of the Bank of England, was quoted saying that the central bank's actions were proactive and designed to reduce future uncertainty revolving around the British economy.
Fun Story of the Week
The Produnova, or the "death vault" as some have come to call it, is one of the most dangerous events a gymnast can attempt. In fact, it's so dangerous that only five have successfully completed the vault in official tournaments, all of them women. Originally named after Yelena Produnova, a Russian gymnast who first completed the vault in 1999 and remains the only one to have done so without any problems, the Produnova consists of a front handspring followed by two front somersaults. It's so difficult and dangerous that the vault has a difficulty score of 7.0, giving any gymnast who succeeds a significant advantage over the competition. The danger comes from the fact that gymnasts are more likely to land on their back than their feet and, when you're spinning as fast as they are, the landing can be fierce. For the Rio Olympics, only two will take on the Produnova: Dipa Karmakar, the first ever Indian female gymnast to qualify for the games, and the 41-year-old Oksana Chusovitina from Uzbekistan, the oldest gymnast at this year's competition.
Securities offered through Jacques Financial, LLC (JFLLC) a Broker-Dealer, Member FINRA and SIPC.Certain associates of Joseph W. Jacques, CPA, CFPTM are registered representatives of JFLLC. Joseph W. Jacques, CPA, CFPTM and JFLLC are affiliated. Investment advisory services are offered through Jacques Advisors, LLC an affiliate of JFLLC. Tax services are offered through Jacques & Associates Certified Public Accountants, LLC an affiliate of JFLLC.
This commentary is written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
S&P 500 INDEX
The Standard & 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.
NIKKEI 225 AVERAGE INDEX
The Nikkei 225 Average Index is a Japanese index that tracks the top 225 companies listed on the Tokyo Stock Exchange. It includes the most liquid Japanese stocks listed in the first section of the Tokyo Stock Exchange. It is price-weighted and yen-denominated.
MSCI EUROPE INDEX
The MSCI Europe Index captures large- and mid-cap companies across 15 developed markets countries in Europe.
SHANGHAI COMPOSITE INDEX
The Shanghai Composite Index is a market index of all stocks (A shares and B shares) that are traded on the Shanghai Stock Exchange. It tracks the largest publicly traded companies in China.
CBOE VOLATILITY INDEX (VIX)
The CBOE Volatility Index is a measure of the market's expected volatility for the following 30-day period. It is constructed using the implied volatilities of S&P 500 Index options prices.
CNBC, August 2016. http://www.cnbc.com/2016/08/12/record-high-stocks-last-time-all-three-indices-broke-record-a-fall-came-next.html
Wall Street Journal, July 2016. http://blogs.wsj.com/moneybeat/2016/07/28/u-s-stock-markets-have-become-a-lot-less-exciting-this-month/
Wall Street Journal, August 2016. http://www.wsj.com/articles/bank-of-england-cuts-key-interest-rate-to-new-low-1470309155
CNBC, August 2016. http://www.cnbc.com/2016/08/04/bank-of-england-cuts-key-rate-for-the-first-time-in-over-seven-years-to-025.html
Wikipedia, 2016. https://en.wikipedia.org/wiki/Produnova
Wall Street Journal, August 2016. http://www.wsj.com/article_email/the-vault-that-is-too-wild-for-simone-biles-1470539776-lMyQjAxMTA2ODAzOTcwOTkzWj
Wall Street Journal, August 2016. http://www.wsj.com/articles/stocks-slip-as-oil-prices-hit-energy-companies-1470902235
Wall Street Journal, August 2016. http://www.wsj.com/articles/european-stocks-edge-lower-1470728275