The market is as streaky as a slice of bacon.
U.S. stock markets have
been sliding higher. They’ve been sliding lower.
Barron’s reported the Standard
& Poor’s 500 Index has tumbled from gains to losses and back again for 10
weeks in a row. The Dow Jones Industrial Index has tagged along with nine weeks
of flip-flops. You’d almost think they were running for office.
There are market optimists.
There are market pessimists.
The American Association
of Individual Investors (AAII) weekly survey of investor sentiment reported
34.6 percent of respondents were bullish. That’s up from the previous week.
Thirty-five percent of respondents were bearish. That’s also up from last week.
What’s down? Neutral sentiment. More people are forming opinions about the possible
direction of the market.
There are questions that
need to be answered.
Will the Federal Reserve
begin to raise rates this week? Some say yes. Some say no. Barron’s said it’s too close to call. There is no clear consensus,
Fed officials have given mixed signals, and the bond market has not priced in a
rate hike. If the Fed does raise rates, experts cited by Barron’s said markets could get ugly for a little while or they
could remain calm. A lot depends on the wording of the Fed’s statement.
Have Chinese markets
stabilized? MarketWatch reported the Shanghai Composite Index finished last week
higher. It was the first positive weekly outcome in a month. Chinese
authorities, once again, are taking steps to stabilize markets. The Economist offered this thought, “As
China’s financial markets develop, its stock market will become less bumpy. For
now, investors must remember that many things are bigger in China, including
the daily ups and down of its stock market.”
Will the U.S. government
shut down again?
It’s in the hands of our elected officials.
Are we seeing
the big picture? It’s
safe to say many people are worried about whether economic growth – in the
United States and abroad – will be stifled by changing monetary policy in the
United States. As a result, all eyes have been on the Federal Reserve, which is
expected to begin raising the Fed funds rates sometime soon.
However, the Federal Reserve’s monetary policy
isn’t the only game in town. Fiscal policy – the actions taken by our
government – can also have a profound effect on economic growth. A July Brookings’ blog post ‘Fiscal Headwinds
are Abating,’ reported:
“Tight fiscal policy by local, state, and federal
governments held down economic growth for more than four years, but that
restraint finally appears to be over… Fiscal policy is no longer a source of
contraction for the economy, but neither is it a source of strength.”
The blog post discusses the reasons that
government spending has held back economic growth. At the federal level,
contraction was attributed to “…tight caps on annually appropriated spending
and the automatic spending cuts known as sequestration.” The organization’s
Federal Impact Measure (FIM), which estimates the effect of federal, state, and
local spending (and taxes) on gross domestic product growth, suggests federal spending
caused economic growth to be 0.35 percentage points lower per year, on average,
between 2011 and 2013.
There is talk of a government shutdown at the end
of September. If it happens, it could have an effect on economic growth. The
last time the government shut down was in 2013. Experts cited by the BBC reported the 2013 shutdown cost the
U.S. economy about $24 billion and reduced quarterly economic growth by 0.6
percent. That shutdown lasted 16 days.
It is possible economic growth may slow for some
period of time. It’s also possible monetary policy, fiscal policy, and other
factors may be responsible.
Weekly Focus – Think About It
“My best
friend is the man who in wishing me well wishes it for my sake.”
--Aristotle,
Greek philosopher
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