Week of September 28, 2015
Equities markets finished last week lower, breaking an eleven-week streak of flip-flopping back and forth between negative and positive gains. The S&P 500 fell 1.4%. The Dow Jones Industrial average lost just 0.4%, buoyed on the last day by positive report from Nike. And, the Nasdaq Composite dropped 3%. The Nasdaq suffered from a collapse in biotech shares following a proposal by Hillary Clinton to curtail rising drug prices. The Nasdaq’s biotech sector dropped 13% for the week, and is now down 22% from its all-time peak in July.
Chair Yellen Stumbles, But Hints That Rates Will Rise This Year
Late last week Fed Chair Janet Yellen presented a 40-page speech at the University of Massachusetts in Amherst. The speech was notable for two reasons. First, Ms. Yellen conspicuously paused, coughed, and stumbled over a few words toward the end. She was later taken to the hospital and evaluated for dehydration before being released and resuming her busy schedule. Additionally Ms. Yellen reinforced her belief that the Fed will raise interest rates sometime in 2015. This comes just a week after the Federal Reserve decided not to pull the trigger at its September FOMC meeting to the surprise of many. Uncertainty about the Fed’s plan led to increased market volatility, and this may have been her way to add more clarity. Despite Chair Yellen’s claim, the markets are still in disbelief. According to Fed funds futures the market expects just a 10% chance of a rate hike in October and only a 32% chance of a lift off by December.
Source: Bespoke Investment Group, September 22, 2015, https://www.bespokepremium.com/think-big-blog/fed-funds-futures-no-hike-come-october-not-likely-in-december-either/
Jobless Claims Support Improving Domestic Economy
The number of unemployed workers filing for initial benefits rose last week by 3,000 to a seasonally adjusted 267,000 claims. While this is up from the prior week, it was well below the expectations of most economists, who predicted a figure of 275,000. This claims data tends to be volatile from week to week, but the trend has been steadily improving since the financial crisis. Weekly jobless claims have remained under 300 thousand for 29 consecutive weeks. This is the longest streak since 1973. Even the four-week moving average, which smoothens the weekly variability, fell to 271,750 claims.
Source: Bespoke Investment Group, September 24, 2105, https://www.bespokepremium.com/think-big-blog/jobless-claims-rise-less-than-expected-2/
Brazil Continues To Struggle
While economic data points at home continue improving, those abroad are still deteriorating, especially in the emerging markets. Few exemplify this better than Brazil. Early last week that country’s currency, the real, traded to its lowest point since 1994 at 4.066 Brazilian real to the U.S. dollar. So far this year the Brazilian currency has lost ~35% of its value versus the dollar. Yields on its debt have risen to 16%, nearly double the emerging market average. And, inflation is running nearly 10% annually. Investors continue to expect political turmoil coupled with a worldwide commodity collapse to dampen that country’s economy. The best indicator of this is the rising value of credit default swaps for Brazilian debt. According to the Depository Trust & Clearing Corp, investors are now paying $464,000 a year to insure $10 million of debt. This is up from $200,000 at the start of 2015.
Source: Wall Street Journal, September 23, 2015 (subscription required), http://www.wsj.com/articles/brazils-real-hits-two-decade-low-1442962341
Fun Story of the Week
Baseball has long been known as America’s pastime, but anyone who strolls through a college campus on Saturday or near an NFL stadium on Sunday knows football wears the unofficial crown. Baseball’s new commissioner, Rob Manfried, has enacted rule changes this year to speed up the game as part of an effort to add new—and specifically younger—fans. While the jury is still out on whether this is working or not, the San Diego Padres successfully added a new young supporter last week. Literally. In Thursday night’s game against the San Francisco Giants, a pregnant fan gave birth to a baby boy (Levi) in the Padre’s stadium during the third inning. Firefighters were called, but did not make it to the park in time, so the team’s medical staff delivered the first baby born at the stadium in its 15-year history. During the same, the San Diego Padres tweeted “Great crowd of 31,137 here tonight”. Make that 31,138.
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Wall Street Journal, September 28, 2015, http://www.wsj.com/articles/u-s-10-year-note-yield-falls-to-nearly-one-month-low-1443101991
Wall Street Journal, September 24, 2015 (subscription required), http://www.wsj.com/articles/janet-yellen-says-fed-interest-rate-increase-still-likely-this-year-1443128438
New York Times, September 25, 2015, https://www.nytimes.com/2015/01/25/sports/baseball/robert-manfred-is-determined-to-steer-young-people-toward-baseball.html?_r=0
Bleacher Report, September 25, 2015, https://bleacherreport.com/articles/2571865-fan-gives-birth-at-petco-park-during-giants-padres-game
Wall Street Journal, September 23, 2015 (subscription required), http://www.wsj.com/articles/brazils-real-hits-two-decade-low-1442962341
Wall Street Journal, September 28, 2015, http://www.wsj.com/articles/global-markets-rebound-on-yellen-speech-1443167180