Weekly Economic & Market Update 9/21/2015

Week in Review

Global stock markets ended mixed this past week with the MSCI Emerging Markets Index moving higher and developed market indexes (including the S&P 500) moving lower. By far the singular global market focus this past week was the interest rate decision coming from the US Federal Reserve (FED). The FED concluded its two-day Federal Open Market Committee (FOMC) meeting and determined that the current federal funds rate of zero to .25% was still appropriate. The justification given was told in one sentence:

“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” –FOMC release from 9/17/2015

In layman’s terms this statement would lead one to believe that the FED is now (maybe has been all along) making US interest rate decisions with consideration given to economic and financial conditions outside the US borders. This alone opens many topics that we will not touch on, but at the very least it begs the question of what are said ‘developments.’

Here are the facts regarding the interest rate decision:

• The US FED has held the FED funds rate at zero to .25% for seven years.
• Initially, said move in rates was considered an emergency measure to take rates that low.
• The FED continues to move the targets or add criteria as to what it is considering for raising interest rates.
• For many market participants, not even moving rates up .25% is worrisome.

The following chart may give some idea of what the FED knows:

Percentage Change Chart 9.21.15

The FED is keenly aware that its actions to stimulate economic growth have had more impact on the investing markets than on the real economy. In the above chart you can see that the correlation of the S&P 500 stock index is tightly linked to the expansion of the FED’s balance sheet versus the actual underlying revenues of the companies that comprise the stock index. The FED has painted itself into a vicious corner and its hesitancy to raise rates by even .25% is telling us that it is afraid of something.

In the past, investing markets have looked forward to a continuation of low interest rates and the accommodative FED. The muted-to-slightly-negative market reaction to the recent rate decision may be pointing to changing sentiment by some investors toward the continuing emergency-level economic accommodation.

We continue to be cautiously optimistic on the markets regardless of the FED’s actions. Our current stance of elevated cash holdings reflects our cautious approach to the investing markets that are being signaled by the technical indicators we follow.

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 9.21.15

Chart 2 – Aggregate Bonds

AKG 9.21.15

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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.