Stocks ended the final days of the third quarter on a positive note, even though stocks were still down for the quarter. For the week, the S&P 500 gained 1.04%, the Dow added 0.97%, and the NASDAQ grew 0.45%.[1]
After hovering around historic highs for months, stocks fell in August on concerns about economic issues in China and other emerging markets. September was marked by continued volatility as investors grappled with uncertainty. Though pullbacks are never pleasant, many analysts had been predicting a correction.
What contributed to market performance last quarter?
Fears about slowing global growth dogged markets for much of the quarter. China, the world’s second-largest economy, took center stage in mid-August when its central bank unexpectedly devalued its currency. Later in the month, markets worldwide plummeted when reports showed that China’s economy may be heading toward a recession.[2] Since then, data releases have underscored that China’s economy is in trouble. Will China slip into a recession? No one knows for sure, but it’s looking increasingly likely.
The Federal Reserve has also added to investor uncertainty as it debates raising interest rates from their near-zero lows. Though the Fed has pledged to raise rates soon, concerns about China and the recent market turmoil caused the central bank to hold its current rate levels until October at the earliest.[3]
The September jobs report showed a big miss in job creation, possibly indicating that the labor market is slowing. The economy added just 142,000 jobs in September, and new hires were revised downward to 136,000 in August. Though the unemployment rate remained stable at 5.1%, the labor force participation rate dropped to 62.4%, the lowest rate since October 1977.[4]
While a couple of months of weak hiring isn’t terrible, the numbers are below the 200,000 trend that we’ve seen in recent months, and well short of the 203,000 jobs economists had been expecting. While we don’t want to draw too many conclusions from a single data release, it’s fair to say that months of weak commodities prices, volatile oil, and weak global demand may be taking a toll on U.S. companies. Though Fed Chair Janet Yellen expressed support for raising rates this year, the weak jobs report could cause the Fed to hold off on a rate raise until 2016.[5]
What can we expect in the weeks ahead?
Growth will be on everyone’s minds in the coming weeks and months as analysts look for evidence that global economic worries have reached American shores. Some analysts worry that emerging market woes risk leading the world economy into a slump. A September survey of economists showed that though many are concerned about the effects of China’s slowdown on U.S. growth, most expect the effect to be relatively mild. However, a significant minority expect China’s issues to have no real effect on the economy, despite market turmoil.[6] The U.S. economy may be mostly shielded from the effects of slow global growth because domestic demand drives so much of our economic growth.
In the coming days, earnings reports will give us more information about how U.S. companies fared in the last three months. Though we don’t have a lot to go on yet, we have positive expectations after a tough September.[7] The October Federal Reserve Open Market Committee will also be closely watched by analysts to determine whether the Fed is likely to raise rates this year.
Bottom line: We can expect more volatility in the coming weeks as investors digest data and wait for more certainty. While pullbacks and turmoil are often stressful, we are always on the lookout for opportunities and ways to help our clients pursue success amid the uncertainty. If you have questions about your portfolio or how you are positioned for today’s markets, please give our office a call. We are always happy to answer questions and offer a professional perspective.
ECONOMIC CALENDAR:
Monday: ISM Non-Mfg. Index
Tuesday: International Trade
Wednesday: EIA Petroleum Status Report
Thursday: Jobless Claims, FOMC Minutes
Friday: Import and Export Prices
HEADLINES:
- Weekly jobless claims rise more than forecasted. The number of new applications for jobless benefits rose slightly, though claims remained below the important 300,000 line. Since the four-week moving average dropped, the underlying trend still suggests strength in the jobs market.[8]
- Consumer confidence jumps in September. Despite global turmoil, U.S. consumers weren’t fazed and continue to feel positive about their financial prospects.[9]
- Construction spending grows more than expected. Spending on construction grew in August by 0.7%, surprising economists who had expected 0.6% growth. The increase was led by private sector construction, indicating that the economy continues to expand.[10]
- Factory orders drop in August. Factory order, an indication of the health of the manufacturing sector, fell 1.7% in August. Though factory orders are notoriously volatile, economists had projected only a 1.3% drop.[11]
Quote of the Week:
“Business is like a man rowing a boat upstream. He has no choice; he must go ahead or he will go back.” – Lewis E. Pierson
Tax Tip of the Week: Don’t Miss the October 15 Extension Deadline
If you requested an extension on your 2014 taxes, your extra time is about to run out. October 15 is the deadline for most people who requested an automatic 6-month extension on filing their taxes. If you haven’t filed yet, here’s what you need to know:
Pay your taxes as soon as possible. Even if you requested an extension, you’re still accruing interest on the taxes you may owe. If you can’t pay all of your taxes right away, consider asking for more time or setting up an installment agreement.
If you expect a refund, ask for direct deposit to speed up the refund process and reduce the risk of theft or fraud. The IRS issues more than nine out of 10 refunds in less than 21 days.
If you owe taxes, the best way to pay them is using IRS Direct Pay, which is a quick and free way to pay from your checking or savings account.
Don’t miss tax benefits in your rush to file. Check to see if you qualify for the Earned Income Tax Credit and the Saver’s Credit. The American Opportunity Tax Credit and other education tax benefits can help you pay for college.
For more information about filing your taxes, visit IRS.gov or contact a qualified tax expert.
Tip courtesy of IRS.gov[13]
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Notes on featured image: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly