Concluding a very choppy week, the Dow (+0.6%), NASDAQ (+0.0%) and S&P 500 (+0.5%) managed to erase steep losses on Monday to finish the week in positive territory. Meanwhile, taxable bonds and municipal bonds suffered a rough week, as each asset class dropped about 0.3% - 0.5%.
In the news, China’s largest property developer (Evergrande) announced that it might default on paying interest on its bonds, and the news sent stocks down about 2% on Monday. Once cooler heads prevailed, the markets rallied back and finished the week higher. The 10-year US Treasury was also very volatile last week, and finished the week with the highest yield in nearly three months. The Conference Board’s Leading Economic Index (LEI) also reported another monthly gain in August. The upward trend in LEI paints a picture of robust economic growth.
From the political headline front, there are now discussions in Washington as political parties are in battle regarding the passage of two economic stimulus packages, changes to the tax laws, and the need to raise the government debt limit. The latter will create tremendous debate and could cause the government to shut down and/or not pay its debt. We came close to this in August 2011, and it created a tremendous amount of volatility in BOTH the stock and bond markets. With what I’ve seen in Washington, I could see this coming down to the wire, and being on the forefront of economic headlines until we begin corporate earnings reports in early October. Strap on your seat belts – this is going to be a wild ride for the next couple weeks.
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