The Markets
Last week, investors took a long look at the crazy quilt of information and events around the world and decided they didn't like what they were seeing.
Geopolitical tensions puckered a lot of seams: Conflict in Ukraine was embroidered with additional sanctions against Russia, difficulty investigating the downed commercial airliner in Ukraine, and escalating anti-American rhetoric in Russia. Violence continued to roil through Middle East and North Africa. In Libya, hostilities escalated, causing many western countries to withdraw diplomats and leading Tunisia to close its border with the country.
Financial and economic issues overseas, including ongoing issues with one of Portugal's largest banks, and worries that European companies will be negatively affected by sanctions against Russia, marred investors' views, too. In addition, controversy swirled around Argentinian bonds. In the midst of a legal battle over bond repayment, the country missed a June interest payment. The 'credit event' triggers a payout of about $1 billion for investors who hold insured Argentine debt.
Positive news in the U.S. offered some padding. The U.S. economy continued to recover and gross domestic product increased by 4 percent (annualized) during the second quarter which was a remarkable improvement after first quarter's contraction. Reuters reported, "Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 2.5 percent pace... Despite the pick-up in consumer spending, Americans saved more in the second quarter... which bodes well for future spending."
The Federal Reserve issued a midweek statement confirming economic recovery was continuing. It caused some investors to throw what one expert called a 'taper' tantrum. Barron's said, "As the Fed's easy money policies reverse, people are forced to focus more on what they're paying for investments. If last week is any indication, investors didn't like what they saw in their portfolios."
By Friday, U.S. markets had experienced their worst week in two years. As investors adjust to the idea of rising interest rates, markets may experience additional volatility.
Data as of 8/1/14
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1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
-2.7%
|
4.2%
|
12.8%
|
14.4%
|
13.9%
|
5.7%
|
10-year Treasury Note (Yield Only)
|
2.5
|
NA
|
2.7
|
2.7
|
3.6
|
4.5
|
Gold (per ounce)
|
-0.3
|
7.5
|
-1.8
|
-7.3
|
6.1
|
12.7
|
Bloomberg Commodity Index
|
-1.7
|
1.1
|
0.7
|
-7.9
|
-0.6
|
-1.4
|
DJ Equity All REIT Total Return Index
|
-1.5
|
16.0
|
12.3
|
11.9
|
20.5
|
9.4
|
S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
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