Weekly Economic & Market Update 8/17/2015

Week in Review

Global stocks were mixed this past week as the US stock market led with gains, and foreign markets lagged with losses. For the most part, US stocks have trended sideways for most of the year as talk from the US Federal Reserve of interest rate hikes continue. As is often the case, summertime comes with ho-hum market performance. This summer seems to be more of the same ho-hum performance as the global economy appears to be slowing.

The big news in markets this past week was China’s surprise currency devaluations. This past week China devalued its yuan currency over a two-day period (Tuesday and Wednesday) by approximately 3.5% versus the US dollar. China’s rationale for the devaluations was to allow market forces to guide the value of the yuan. The new policy issued by the Chinese monetary authorities is that China will now fix the value of the yuan to the dollar based on the previous day’s closing value relative to the dollar. Whatever the true reason is, it is likely not a coincidence that we see a devaluation from China in the midst their economic slowdown. What do the happenings in China potentially mean to the wider global economy on a positive and negative basis?

Negative – (1) The Chinese moves in their currency and financial markets could be pointing to deeper problems in the economy. (2) Tough times for commodity export nations as China has been ‘the’ buyer of commodities over the last decade. (3) A wave of deflation that could put pressure on smaller debtor nations like Greece, Italy and Spain.

Positive – (1) The world could see cheaper goods exported from China. (2) There could be a delay from the US Federal Reserve on hiking rates which would make Wall Street happy. (3) Cheaper gas prices could stick around longer if Chinese demand for petroleum continues.

As has been the case for the past few years, there are both positive and negative aspects to the roaming currency wars. China’s moves last week are just the latest in the continuation of the global currency war that began in 2009.

As always, we continue to watch global markets for opportunities and signs of stress.

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

SPX 8.17.15

Chart 2 – Aggregate Bonds

AKG 8.17.15

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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.