Weekly Newsletter 8/25/2014

Global stock markets moved higher last week although light on economic data points.  Trumping most everything from this past week was the annual Jackson Hole, WY Economic Symposium which is hosted by the Kansas City Federal Reserve.  Each year the Fed Chairman gives what has become a highly anticipated speech.  This year’s speech was titled ‘Labor Market Dynamics and Monetary Policy.’

The content of the 16 page speech can be summarized by the following paragraph from the first page:

“The Federal Reserve’s monetary policy objective is to foster maximum employment and price stability. In this regard, a key challenge is to assess just how far the economy now stands from the attainment of its maximum employment goal. Judgments concerning the size of that gap are complicated by ongoing shifts in the structure of the labor market and the possibility that the severe recession caused persistent changes in the labor market’s functioning.”

The remaining 15 pages provides a lengthy, and at times, self-contradictory discussion about the health of the labor market.  On one hand, the speech points to a recovering job market justifying a removal of QE3.  On the other hand, the speech points to the job market as a continuing concern; therefore, interest rates will be targeted at zero for some time more.  Unfortunately, the QE program was never aimed to help employment.  In fact, it was meant to help stabilize insolvent banks, which is a whole different discussion.  According to the speech, ‘More jobs have now been created in the recovery than were lost in the downturn…’ and such logic is used to support the decision to remove the QE program.  However, if we look at the charts below which outline the jobs that were lost from 3/2007 to 3/2009 and compare those numbers to the jobs that were gained from 4/2009 to 7/2014, we see that the quality of jobs leaves a lot to be desired.  Therefore, it is hard to imagine that the Fed, with all of its resources, does not see this as troubling and hence not a reason to pull back QE.

Job Market 03-07

Job Market 04-00

It is easy to see from the two charts that the numbers are back but the quality is lacking greatly.  So, trying to hang the decision to remove QE3 based on an improving jobs market is thin.  Therefore, the question is: why is QE3 being wound down if it certainly is not an improving jobs picture?  Our guess is that the Fed is finally realizing that its massive bond purchases are causing the financial distortions we have been pointing to in these weekly comments for some time.  As always, we continue to monitor not only the words from the central banks but also the actions to gain clarity on the financial markets.

Global Market Index Performance

Global Market Perf 8-25-14

Getting Technical with Market Charts

In this section we present charts of the S&P 500 Stock Index and the US Bond Market Index relative to their 50 day (blue line) and 200 day (red line) moving averages.  In addition, we have added the blue shaded area which represents the recent trading channel. The 50 and 200 day moving averages are widely followed market trend indicators that provide a general picture of the health of the broad indexes.

Chart 1 – S&P 500 Index

$SPX 8-25-14

Chart 2 – US Aggregate Bond Index

$AKG 8-25-14

Global Data Points

Econ Data Points 8-25-14

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Disclaimer – Information contained herein is taken from sources believed to be reliable, but cannot be guaranteed as to its accuracy. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. The Standard and Poors 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Contact your investment professional to discuss suitability for your particular circumstances. This article does not constitute an offer of sales of any securities. Securities trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Lighthouse Financial Advisors, Inc., dba Lighthouse Wealth Management, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.

About Katy Chase

Katy Chase, MBA, contributes her own perspective to the team. With previous training in Marketing and French, her perspective offers a mixture of macroeconomic, cultural, and client-focused experiences. In addition, Katy is a baker (with a specialty in chocolate), athlete, perpetual student/learner, volunteer, blogger, Nittany Lion, daughter, grand-daughter, sister, and wife.