PMC Market Commentary: September 12, 2014
A Macro View – Post-Labor Day Stasis
Well here we are. The operating assumption for much of August was that the end of summer post-Labor Day would lead to a renewed attention to markets after a relatively calm few months. The first week of September, however, has not seen that play out.
Indeed, activity and volume remains muted. Yes, there was a flurry of attention to the unveiling of Apple’s new iPhones and the Watch. And there was a new development in the intensifying U.S. campaign against ISIS in northern Iraq and eastern Syria. The Apple event had the potential to be a market-mover but was not. As we discussed several weeks ago in the Envestnet Edge, geopolitical crises such as ISIS are unequivocally important concerns but rarely constitute market events.
Volatility and tumult always loom on the horizon, but after years of heightened volatility we may be in for a protracted period of stasis. That stasis has seen a definite upside bias to equities and a surprising downward bias to global interest rates. This past week at least, rates began to tick up, even with the announcement by the head of the European Central Bank Mario Draghi to launch Europe’s own version of quantitative easing in an attempt to inject life into moribund EU economies. On the flip side, as the Fed winds down its quantitative easing, investors and managers are already beginning to anticipate a rise in U.S. rates, especially against the backdrop of consistently and steadily improving economic numbers.
None of this, however, constitutes dramatic moves. Rates may begin to head back to 3% on the U.S. 10-year from their recent lows below 2.5%, but we are not talking about sharp and destabilizing moves. That concern is out there, naturally, but for now, there is scant evidence of that happening. None of this, in turn, is an excuse for complacency, but the generic stability and modest climate of onward and upward cannot and should not be dismissed. It has, after all, proved to be the dominant trend for some time.
Will next week or the next bring some event or surprise that sees some volatility? Perhaps. The first week of August was a sharply negative one for equities, yet after that flurry, the rest of the month saw very strong gains and low volatility. Another week or two of that in the month ahead is certainly possible but would not, by itself, change the narrative of upward trends in equities and a modest trend of marginally rising interest rates. And as always, this period of continued calm is an opportunity to assess, rebalance and build new positions deliberately and methodically.
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