Market Update 9-6-13

All Eyes on US in G20 Summit

The G20 Summit was held in Russia this week as nations leaders met to discuss the health of the global economy. The consensus heard from both developed and emerging nations alike was a call for clear and concise communication on a US timetable for monetary policy changes that could have global ramifications.  Also on the agenda was discussions on the best course of action in response to the attacks in Syria.  There has been opposition to an American military strike and some leaders suggest that any actions should be determined and sanctioned by the U.N.  

Economic Data

The August jobs report showed 169,000 new positions were created for the month compared to 175,000 forecasted by economists. Also announced was that the July job figures were revised downward to 104,000 from the previously reported 162,000, suggesting that economic growth in the US is progressing slower than expected.  The unemployment rate dropped to 7.3 percent from 7.4 percent, however this was due primarily to the number of people leaving the workforce due to inability to obtain work.  The labor participation rate dropped to 63.2 percent, the lowest level it has been in nearly 35 years.

This recent data may complicate expectations for the Federal Reserve to begin to reduce their current level of bond purchases as early as this month.  The Fed officials are set to meet September 17th and 18th to discuss whether to start scaling back the bond purchases.  The combination of Syria and the Fed’s decision could create short term volatility in the markets and may provide good buying opportunities for long term investors.

Automobile sales in the US showed a 17 percent gain in August from last year as the industry logged its strongest month since before the start of the 2007-2009 recession.  Available cheap financing and low leasing rates have helped consumers trade up for newer vehicles and is expected to continue as new models are introduced this Fall.

The growing number of young adult children moving out on their own is expected to provide a nice economic boost for the US economy.  As the job picture improves it is estimated that the combination of home building, apartment rentals, and related sales activity could provide approximately 30 percent of our GDP growth through 2019.  Growth from this generation will be vital for the economy as it is estimated that approximately 8,500 baby boomers will turn 65 each day in the US over the next 20 years and more enter into retirement.

Europe and Emerging Markets

On Thursday the President of the European Central Bank Mario Draghi called for continuance in maintaining a low interest rate environment and said he is “very cautious” regarding his outlook for the regions prospects for growth.  Recent data showed Europe breaking out of recession in the second quarter of the year, helped primarily by a recovery in France and Germany.   But hopes continue to be based on a slow economic recovery.

Spain’s unemployment levels decreased in August marking the 6th month of declining figures.   Spain has been one of the hardest hit economies in the Euro zone so hopefully this data points to some signs of stabilization.   Granted, their most recent quarterly unemployment rate showed 26.3 percent still without work.  The world economy could use a European economic recovery at a time when there are signs of a pause in emerging markets and anxiety about the timing and impact of the Federal Reserve’s monetary policies.

Goldman Sachs raised its GDP forecast for China to 7.6 percent from 7.4 percent for 2013.  The revision comes as recent economic data out of China points to stabilization in the world’s second largest economy. Their estimate for 7.7 percent growth in 2014 remains unchanged. Their outlook for India has been slashed however as they now expect the economy to grow just 4 percent from their original estimate of 6 percent for the fiscal year ending March 2014 and cut growth estimates for fiscal year ending March 2015 to 5.4 percent from previous 6.8 percent.

Total global GDP is projected to pick up in the second half of this year, with estimates for 2.6 percent on a year-to-year basis in the fourth quarter.  That may help US multinational companies despite facing current headwinds such as slow economic growth and political gridlock in Washington.

Miscellaneous

Apple is scheduled to make an announcement on September 10th with expectations for the newest version of the iPhone.  The following day they have scheduled a media conference in China with planned release of the iPhone 5C and anticipations are high for a possible finalized deal with China Mobile.  China Mobile is the world’s largest cell phone carrier and would provide Apple access to 740 million new potential consumers for iPhones.  We will be watching closely next week to see how these announcements will impact the outlook for the company.