August 14, 2017 – Weekly Market Commentary



 

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Jethro Mullen – CNN Money
Global Markets Wobble After Trump Warns North Korea of “fire and fury”

Summary: Major equity indexes dropped after Trump ratcheted up the war of words with Kim Jong Un’s regime by saying it will “face fire and fury like the world has never seen” if it keeps threatening the United States. Investors began moving money into traditional safe haven assets such as bonds and gold. 

 

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Lucia Mutikani – Reuters
Modest Rise in US Consumer Prices May Delay Fed Rate Hike

Summary:
US consumer prices rose less than expected in July. Year over year inflation was 1.7%, still below the Fed’s target of 2%. The Fed has said that factors holding back inflation are transitory, but with the economy nearing full employment and wage growth remaining stagnant higher inflation will be harder to come-by. Analysts are not expecting a rate hike when the Fed meets again in September, but a December hike could still be an option.

 

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Crystal Kim – Barron’s
The Highest VIX Options Volume Day in History

Summary: August 11th was the highest VIX options volume day in history. The VIX jumped from below 10 to over 16 last week. The rise of exchange traded products that track the VIX has led to a significant increase in futures volume in order to rebalance the products after significant moves in the index.

 

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Eric Schatzker – Bloomberg Markets
Gundlach, Wary of Pricey Market, Sets Cap on DoubleLine Size

Summary: Co founder and CEO of DoubleLine Capital Jeffrey Gundlach says risky assets such as junk bonds and emerging-market debt are overvalued. He says he is reducing those positions for more higher-quality credits with less sensitivity to rising interest rates; says it’s better to be cautious now than to hold on until it’s too late. Gundlach also said that he will likely stop raising capital when the firm reaches $150 billion because the size of the markets in which he invests impose a limit on the amount of assets DoubleLine can manage well. 

 

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Jeffrey Kleintop, Chief Global Investment Strategist
What are Fund Flows Telling us About Trends and Risks in the Global Stock Market?

Summary: Strong global stock market performance has led to an increase in investor demand. Investors have been selling actively managed funds and pouring money into ETF products. Some analysts have been worried that the surge in ETF assets is creating a bubble, but Kleintop says that we are not seeing signs of a bubble so far. Investors have been favoring international ETFs, but flows are not chasing performance. This indicates that investors are using international ETFs to diversify rather than seeking a short term boost to performance and that a rapid reversal of flows is less likely. 

 

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Russ Koesterich, CFA – BlackRock Global Allocation Team
Why Investors Are Ignoring Political Dysfunction – For Now

Summary: Koesterich points out that historically, the relationship between government policy uncertainty and market volatility is weak. Policy uncertainty is more likely to influence market volatility when financial conditions are tightening, which is not happening right now. Tight high-yield spreads, the advance of the stock market, and a weaker US dollar have led to easier financial conditions and less financial stress. 

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