Little changes for U.S. stocks

29 Aug 2015 | Author: | No comments yet »

5 Things to Know About the Economy This Week.

It was a brutal week that finished with a relatively happy ending for people paralyzed with fear about the stock market, but a disaster for some who tried to escape danger at any cost.Days after China threw the biggest scare into Wall Street in years, U.S. stocks have come surging back and ended the week Friday on a placid note that suggested the worst may be over for now.The S&P 500, Dow Jones industrial average and Nasdaq composite all swung into correction territory this week before turning back around on Wednesday and Thursday. Despite a horrifying 1,100 point plunge at the start of the week, and more nail-biting downturns later, by the close on Friday the damage was not nearly as bad as you might have imagined.

By Friday, stocks seemed to be in a much stronger place than where they began the week, though all three indexes opened lower than expected and had a roller coaster of a morning. Or as Sam Stovall, U.S. equity strategist at S&P Capital IQ, has aptly observed: “Market action during the past week has reminded investors that advances typically take the stairs, while declines take the elevator.” There had been too much certainty lately; too much money chasing too few stocks; too many market pundits and investment professionals confusing brains with a bull market. Stocks, currencies and commodities have seesawed as investors grappled with what could be a worse-than-expected slowdown in China, the world’s second-largest economy. Those fears were reignited earlier this month, when China unexpectedly devalued its currency, in a move that signaled the government’s concern about growth, and kicked into higher gear as economic data continued to show lackluster Chinese growth. “There’s probably more of a fragility to both the market and the global economy than we thought” earlier, said John Linehan, portfolio manager of U.S. large-cap value strategies at T. Before the six-day losing streak had ended, the Dow had plummeted 1,900 points and the S&P 500 was undergoing its first “correction,” a decline of 10 percent or more, in nearly four years.

After being down 1,100 points stocks began to climb, and at a point when the Dow was down only about 150 points, people might have assumed they would bail out and escape any future danger. But stocks soared at midweek, cutting the Dow’s losses nearly in half, in a rally analysts attributed to bargain-hunting, signs that the Federal Reserve may hold off raising interest rates this fall, and a new report that said the U.S. economy is growing at a more robust rate than previously believed. Still, the concerns that triggered the sell-off remain: slumping oil prices, a slowing Chinese economy, weak corporate earnings forecasts and uncertainty over interest rates. “For the last few years, let’s face it, there’s been very little volatility,” said JJ Kinahan, TD Ameritrade’s chief strategist. “We’ve had a very impressive rally. Dudley said this week that a September interest rate hike “seems less compelling” given current domestic and international market conditions, which bodes well for investors hoping to have continued low interest rates. People with mutual funds often don’t realize that when they get cold feet about 401(k)s or any other investments, they can’t just get out of their funds on a moment’s notice.

Not that we can’t go higher, but it’s not going to be an easy path to get there.” Despite the bounce-back this week, stocks are on course for their worst monthly performance in more than three years. The stronger-than-expected GDP gain was undoubtedly a welcome sign, though it’s as of yet unclear whether such strong growth will be revised lower before a final estimate is released in October. So last Monday, a person might have decided to bail when stocks were down just 150 points around noon, but the loss they had to take was more like 600 points because that was the carnage in stock funds by the end of the day (4 p.m. eastern time when the market closes). The VIX is based on S&P 500 options, a popular form of protection investors tend to flock to when pullback fears heighten. “You’ve got carnage in emerging markets and their currencies, and in commodities,” said Steve Sosnick, options trader at Timber Hill, the market-making arm of Interactive Brokers. “I find it a little too neat that we had our couple of bad days and it’s back to business as usual…and the VIX is telling you that.” Remarks from central bankers at a conference in Jackson Hole, Wyo., also attracted attention. Because he recently left his job, Chang has to sell investments he bought with stock options within 90 days — something he can’t do now without taking a big loss.

To make matters worse, since nervous people sold their funds at the worst of times, they didn’t get the benefit of the recovery that came late in the week. Stanley Fischer, the Fed’s No. 2 official, said the central bank hasn’t settled on whether to raise interest rates next month. “There is still a small likelihood of a Fed move in September—they want to keep their options open,” said Jack Kelly, head of global government-bond funds at Standard Life Investments, which oversees £250 billion ($385 billion) in assets. Federal Reserve Vice Chairman Stanley Fischer said Friday that before the recent turbulence, there was a “pretty strong case” for raising rates in September. People yanked $29.5 billion out of stock funds during the week through Thursday, the largest move on record since 2002, according to analyst Michael Hartnett of Bank of America Merrill Lynch.

A strong reading of gross domestic product Thursday showed a second-quarter expansion of 3.7%, up from an initial estimate of 2.3%. “The current data that’s coming in suggests that the economy is in good shape,” said Hank Smith, chief investment officer at Haverford Trust, which manages $6.5 billion. That gives him confidence the bull run in stocks isn’t over, and he is encouraging clients who have portfolios of stocks and bonds to allocate more money to stocks, he said. The value of the funds fell precipitously before the selling actually could be completed, so people ended up losing far more money than they expected. Thanks in part to Chinese government intervention in the form of further domestic interest rate cuts, the Shanghai index closed Friday up more than 10 percent from Wednesday’s finale.

This way you’ll have cash on hand to keep you calm and provide the capital to scoop up bargains from your wish list. (Be sure to have a wish list.) Remember, the market’s trend may be your friend, but Mr. And while lower interest rates will likely bolster consumer sentiment, that alone probably won’t be enough to keep the Asian giant’s economy from cooling further throughout the year. “The policy change is likely intended to reduce the risk of a faster deceleration in growth than is already underway, as most stimulus has since 2012, rather than sharply accelerate growth,” Brian Jackson, a senior economist with the IHS China Regional Service, wrote in a research note Wednesday. Home price indicators continued to rise this week, as data from the S&P/Case-Shiller Home Price Indices and Federal Housing Finance Agency both showed year-over-year gains. The S&P/Case-Shiller national index showed a 4.5 percent jump in June from a year earlier and a 0.1 percent increase month over month, according to a housing report issued Tuesday. Market is upset: The 10 “Market Rules to Remember” that respected market technician Bob Farrell published some years ago are straightforward and honest, and will help keep you in the boat during inevitable market storms.

Home prices have undoubtedly exploded from where they sat a year ago, which is great news for existing homeowners but problematic for those looking to buy a new place, especially first-time homebuyers. But the S&P/Case-Shiller index showed home prices in some of America’s biggest cities actually cooled in June, with Chicago down 1.7 percent, Minneapolis down 0.8 percent and Tampa down 0.7 percent. “The slowdown in price growth is important going forward as we enter the slower homebuying season,” Selma Hepp, chief economist at housing research and analysis firm Trulia, told U.S. News in an email this week. “Affordability pressures are already weighing down some markets, especially in California where job growth and a lack of supply has been pushing prices higher.” Prices have been driven up in large part because of restricted inventory. If the housing market can string together several positive months of strong new home sales, prices across the country are likely to moderate. “The robust improvements in last week’s new housing starts numbers are especially encouraging for new home sales going forward, with single-family starts growing at its fastest pace since the recession,” Hepp said.

That means you might decide when you’ve lost 5 percent to sell, but maybe end up losing 10 or 20 percent by the time your order actually is concluded.

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