Weekly Market Commentary: November 16, 2015

Provided by geralt/Pixabay
Provided by geralt/Pixabay

Attacks on Paris by the Islamic State were an appalling exclamation point at the end of a difficult week for stock markets.

World stock markets tumbled as investors braced for a possible rate hike by the Federal Reserve in December. Many national indices across the United States, Europe, and Asia experienced downturns of more than 2 percent. The Dow Jones Industrial Average lost 3.7 percent and the Standard & Poor’s 500 Index gave back 3.6 percent. The exception was Japan’s Nikkei 225, which gained 1.7 percent, largely because its weakening currency benefitted Japanese exporters.

The chances are pretty good the Federal Reserve will lift rates during December. A Reuters’ poll of 80 economists asserted there is “a 70 percent median chance the U.S. central bank would raise its short-term lending rate at its final meeting of the year…” A survey taken by The Wall Street Journal found 92 percent of academic and business economists expect Fed liftoff in December.

Even if the Fed does raise rates, it’s important to remember that market forces determine interest rate levels. Raising the Fed funds rate is the Fed’s way of encouraging higher interest rates and tighter monetary policy, but it may not have the intended affect. Crain’s Chicago Business reported, “The Fed is moving into uncharted territory. It has never tried to raise the federal funds rate – that is, make money harder to get – when the banking system was flush with $2.5 trillion of excess reserves, as it is now.”

In the U.S., investors digested weaker-than-expected retail sales data. U.S. retail sales remained in positive territory in October (up 0.1 percent); however, economists were anticipating an increase of 0.3 percent. Regardless of the discrepancy, there are signs consumer spending will remain steady through the last quarter, according to Reuters. As a result, retail sales data are unlikely to affect decisions being made by the Federal Reserve.

It’s likely markets will continue to rumble and roil next week as the world processes the horrific Islamic State strikes in Paris, in Lebanon, and against Russia.

Data as of 11/13/15 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -3.6% -1.7% -0.8% 13.8% 11.0% 5.1%
Dow Jones Global ex-U.S. -2.2 -6.3 -8.3 2.4 -0.4 1.3
10-year Treasury Note (Yield Only) 2.3 NA 2.4 1.6 2.8 4.6
Gold (per ounce) -0.7 -9.8 -6.9 -14.4 -4.6 8.8
Bloomberg Commodity Index -3.3 -21.0 -28.9 -16.4 -11.2 -6.8
DJ Equity All REIT Total Return Index -2.1 -2.4 1.0 10.4 11.4 7.1

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

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