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September 14 2016

Blame it on the central banks!

After 44 consecutive sleepy, summer days when Barron’s reported the Standard & Poor’s 500 Index opened and closed without a 1 percent move in either direction, the index tumbled last week – and so did indices in other markets around the world. What roused investors from complacency? Some experts pointed their fingers at central banks:

“Three central banks announced their monetary policy decisions during the week and all three maintained the status quo and did not change policy. The news disappointed the markets – they were looking for more stimulus. And, in some cases, good economic data was interpreted as bad news because it meant that there was less of a probability of more stimulus.”

The U.S. Federal Open Market Committee doesn’t meet until September 20, but markets reacted sharply after Boston Fed President Eric Rosengren (whom Thomson Reuters labels as a dove) said, “My personal view, based on economic data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.” After his speech, Reuters reported the odds of a September Fed rate increase rose from 24 percent to 30 percent.

Expectations for market volatility moved higher, too, but markets weren’t too worried. The CBOE Volatility index (VIX) jumped 33 percent on Friday, reaching 16.56, according to MarketWatch. That was a big move, but significant market volatility is not indicated until the VIX moves above 20.

Sources:
http://www.barrons.com/articles/worried-the-market-is-too-calm-bring-on-the-noise-1473485492?mod=BOL_hp_we_columns
https://graphics.thomsonreuters.com/F/10/scale.swf
https://www.bostonfed.org/news-and-events/news/top-takeaways-president-rosengrens-090916-economic-outlook.aspx
http://www.reuters.com/article/us-usa-fed-rosengren-idUSKCN11F1O9
http://www.marketwatch.com/story/wall-streets-fear-gauge-jumped-the-most-since-brexit-2016-09-09

  • Data as of 9/09/161-WeekY-T-D1-Year3-Year5-Year10-Year
  • Standard & Poor’s 500 (Domestic Stocks)-0.0240.0410.0960.0840.130.051
  • Dow Jones Global ex-U.S.0.24.13.3-0.62.80.2
  • 10-year Treasury Note (Yield Only)1.7NA2.22.91.94.8
  • Gold (per ounce)0.525.319.9-1.4-6.48.5
  • Bloomberg Commodity Index1.27-4.8-13.6-12.2-6.4
  • DJ Equity All REIT Total Return Index-3.810.624.613.5146.3

*Indices are unmanaged and investors cannot invest directly in an index.
*Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*S&P 500, Gold, Dow Jones Global ex-Us, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend).
*The DJ Equity All REIT Total Return Index does include reinvested dividends.
*All investments involve risk – coins and bullion are no exception. The value of the bullion and coins is affected by many economic circumstances, including the current market price of bullion, the perceived scarcity of the coins and other factors. Therefore, because both bullion and coins can go down as well as up in value, investing in them may not be suitable for everyone. Since all investments, including bullion and coins, can decline in value, you should understand them well, and have adequate cash reserves and disposable income before considering a bullion or coin investment.

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Bart A Zandbergen, CFP® is a Registered Investment Advisor with Optivest, Inc and a Registered Representative with Gramercy Securities, Inc. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.

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