September 25, 2017 – Weekly Market Commentary



 

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Donna Borak – CNN Money
Fed Will Finally Wind Down Historic Rescue Program

Summary: The Fed left interest rates unchanged but announced that it will officially begin to unwind some of the $4.5 trillion of investments it has made since the global financial crisis. The announcement is a vote of confidence for the US economy. The Fed is still working through the problem of low inflation and stagnant wage growth which could put the next rate hike on hold for the foreseeable future. 

 

EU Flag

Carolynn Look – Bloomberg Markets
ECB Stimulus is Finally Reaching the Whole Euro Zone

Summary: Regional crises following the 2008 recession virtually severed the ties between ECB interest rates and business loan rate in peripheral eurozone economies. Italian, Spanish, French, and Greek banks have used cheap long-term ECB loans to bring lending costs more in line with core eurozone countries. The result is a stronger sustained recovery in the overall eurozone. 

 

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OECD
OECD Sees Synchronized Momentum for Global Economy

Summary: The OECD’s latest world economic outlook indicates that the global economy has picked up momentum. The firm expects global GDP to grow 3.5% this year and 3.7% in 2018. The 2018 projection would make it the fastest rate of growth since 2011. Further fiscal and structural policy measures will likely be needed to sustain the expected growth rates in many countries. 

 

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Reuters Staff
BOJ Keeps Policy Steady, Newcomer to Board Dissents

Summary: The Bank of Japan left its monetary policy unchanged and maintained an upbeat view of the economy. The BOJ shifted their policy focus last year to target interest rates rather than the pace of printing money through quantitative easing. One surprise from the meeting was a dissenting vote by new board member Goushi Kataoka. Kataoka said that monetary stimulus should be expanded further in order to reach the bank’s 2% inflation target.

 

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Stephen Gandel – Bloomberg Gadfly
Steady Breeze of Stock Buybacks Wanes for Market

Summary: Stock buybacks have been a major tailwind to the current bull market, but companies have slowed the pace of purchases. Buybacks by S&P 500 companies have now declined for five consecutive quarters. Earnings growth may be able to take over where buyback support has been fading, but after a strong start to the year profit growth projections have been fading. The fate of corporate tax reform may be even more important than initially thought given that it could boost both buybacks and earnings. 

 

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Russ Koesterich, CFA – BlackRock
4 Reasons Why The Consumer (and the economy) are Still in Limbo

Summary: Despite stronger economic momentum and historically low unemployment rates consumer spending has been slowing. Koesterich points out four reasons why this may be the case. First, wage growth is not accelerating. Second, auto spending, which has made up roughly 20% of retail sales historically, has been decelerating. Third, savings rates are low, which means that consumers do not have much more room to increase spending. Lastly, consumer spending habits are changing. Retail sales data only captures physical purchases and services are accounting for a greater portion of consumer activity. 

 

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Liz Ann Sonders – Charles Schwab
Comfortably Numb? An Update on Investor Sentiment

Summary: There seems to be no shortage of things to worry about these days but the stock market has taken everything in stride. Investor sentiment has risen to levels which indicate that the market may be ready for a pullback. Households are now holding more equities than any time in history except 2000. Sonders believes that the next bear market is still a long way off, but the current level of complacency could lead to fiercer pullbacks over the short-term. 

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