Weekly Economic & Market Update 10/5/2015

Week in Review

Global stocks were mixed last week as emerging markets and developed foreign markets led whereas in the US, stocks were mixed as larger company stocks put in gains while small to mid-size stocks lagged.

The main driver of stocks last week was an unfortunate return of bad news is good news. Early this past week, the Institute for Supply Management (ISM) released its monthly report on business that came in at 50.2. The ISM report is a monthly report based on a national survey of purchasing managers that tracks month-over-month changes in new orders, production, employment and inventories for the manufacturing sector. A reading of 50 or below is generally associated with a neutral economy. A reading below is considered to be representative of an economy in decline or lagging. See the chart below for context.

S&P v ISM 10.5.15

Additionally this past week, consumer prices fell for the first time since March, when the European Central Bank (ECB) started its bond-purchasing program (European quantitative easing). Falling prices hint at the Central Bank’s enemy – deflation. In the current economic era, just the threat of deflation has been enough to administer economic stimulus. And, as we have seen since 2009, economic stimulus has been good for Wall Street.

Lastly, at the end of this past week the US Department of Labor released the nonfarm payrolls report showing that the US economy added 142,000 jobs in September, which was much less than estimated. Further, the labor force participation rate fell to a multi-decade low of 62.4%.

When viewed together, the US manufacturing report, hints of European deflation, and a subpar US jobs report was enough to convince Wall Street that a delay in hiking US rates is likely and more economic stimulus in Europe may be coming. So, while in the short-term economic stimulus can lift stock prices, it is open for debate as to its impact on the longer-term.

As always, we continue to monitor global markets closely to obtain insight into future market trajectories.

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

S&P 10.5.15

Chart 2 – Aggregate Bonds

AKG 10.5.15

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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.