Renewed Tapering Fears Push Down Markets

Renewed Tapering Fears
Push Down Markets

Weekly Update - August 20, 2013

In This Issue

Markets ended another week in the negative, pushed lower by mixed economic data and underlying fears about future Fed tapering. For the week, the S&P 500 lost 2.1%, the Dow lost 2.23% and the Nasdaq lost 1.57%.[1]

Some strong economic data fueled concerns that the Federal Reserve will start tapering bond purchases after its September FOMC meeting. The number of Americans filing for new unemployment claims fell to a near six-year low, indicating that job growth may have picked up in August.[2] U.S. retail sales rose in July, pointing to increasing consumer activity that could bolster economic activity this quarter.[3] Jobs growth and economic stability are two of the Fed's most important mandates and progress in this area would encourage tapering.

On the other hand, some downbeat economic reports make tapering seem like less of a sure thing. New data indicates that industrial production was flat in July and factory activity slowed significantly in the Mid-Atlantic region, suggesting that the manufacturing recovery may be stalling.[4] Consumer sentiment also took a hit in August as Americans braced for higher interest rates and slower economic growth.[5]

Highlighting the need for more clarity, two top Fed officials cautioned against immediate tapering by suggesting that the Fed needs to digest more economic data before making a decision next month. Dennis Lockhart, the Atlanta Fed President, did not rule out some kind of decrease in bond purchases in September, but he characterized it as a "cautious first step" rather than the start of a steady pullback in quantitative easing.[6]

To attempt to sum up all of the rumors, analysis, and official statements: The Fed is under a great deal of pressure to begin tapering, but economic data is still mixed and isn't giving the Fed the clear picture it needs to make major decisions. It's possible that some initial steps towards reducing bond purchases will be made next month, but future tapering may not follow if economic data doesn't support additional reductions.

It's hard to know amid all the uncertainty which way markets will move in the near term, but more volatility is likely. While stocks have lost ground over the last two weeks, it's important to remember that markets are still up significantly for the year: The S&P 500 has gained over 16% since the beginning of the year and the Dow is up 15%. While it can be hard to watch investments lose value, it's important to stay focused on the long-term. As always, we'll continue monitoring the situation and keep you updated.

ECONOMIC CALENDAR:
Wednesday: Existing Home Sales, EIA Petroleum Status Report, FOMC Minutes
Thursday: Jobless Claims, PMI Manufacturing Index Flash
Friday: New Home Sales

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

U.S. homebuilder confidence at eight-year high. Homebuilder confidence soared in August as limited housing supplies and strong buyer demand pushed confidence to multi-year highs. Despite higher mortgage rates, builders are seeing more motivated buyers as increasing home prices add a sense of urgency to the market.[7]

China may be fudging $1 trillion of GDP data. China may be exaggerating the size of its economy to the tune of $1 trillion, or 8-12% of GDP. While economists have long suspected fraudulent data in China's GDP growth numbers, a discrepancy of this size could have far-reaching consequences both domestically and internationally.[8]

Housing starts rise less than expected. U.S. housing starts rose 5.9% in July, missing expectations and indicating that rising mortgage rates could be slowing the housing market's momentum.[9]

Inflation remained low in July. Producer prices were flat in July, pointing to little inflationary pressure. Low inflation is worrisome because it increases the risk that an economic shock could send prices into a downward deflationary spiral.[10]

"By failing to prepare, you are preparing to fail."

- Benjamin Franklin

Steak With Baby Tomato Salad and Grilled Bread

Turn a steak into a full seasonal meal. Recipe from RealSimple.com.

Ingredients:

1/4 cup olive oil, plus more for the grill
2 pints cherry or grape tomatoes, halved
4 anchovy fillets, chopped
1/4 cup chopped fresh flat-leaf parsley leaves
1 clove garlic, chopped
kosher salt and black pepper
4 strip steaks (1/2 inch thick; about 1 1/2 pounds total)
4 slices country bread

Directions:

1. Heat grill to medium-high. Once it is hot, clean the grill grate with a wire brush. Just before grilling, oil the grill grate.

2. Combine the tomatoes, anchovies, parsley, garlic, 3 tablespoons of the oil, and � teaspoon each salt and pepper in a medium bowl.

3. Season the steaks with � teaspoon each salt and pepper. Grill until an instant-read thermometer inserted into the center of each steak registers 130� F, 2 to 3 minutes per side for medium-rare. Let rest for 5 minutes before slicing.

4. Rub the bread with the remaining tablespoon of oil. Grill until golden brown, 1 to 2 minutes per side.

5. Serve the steak and bread with the tomato salad.

Renting Your Vacation Home

If you rent a vacation home, you must obviously report the rental income on your federal income tax return. However, if you rent the property for fewer than 15 days each year, you don't have to report the income. You can also deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence. Find out more by reading IRS Topic 415.

When a Wedge Won't Cut

Many golfers try to hit bump-and-run shots with a wedge, but the ball stays in the air too long and doesn't scoot much after it lands. Worse, they risk having it roll back down to their feet.

To make sure your bump-and-runs actually run, try to use up to a middle iron. And don't be afraid to employ your putting grip and stroke. Play the ball slightly back of center in your stance, and hit down on it.

Home Remedy for Aches and Pains

If you recently overdid it with exercise or are experiencing some minor aches and pains, a simple home remedy can help. Epsom salts ease body aches by reducing swelling. Add 2 cups of Epsom salt in your bathtub of warm water. Soak for 30 minutes.

Safely Dispose of Your Old TV

With the popularity of large format LCD TV sets, many people have been bitten by the TV-upgrade bug. But how to dispose of the old sets? Old TV sets and computer monitors can contain up to four pounds of lead, making the landfill a big no-no. Dispose of your old TV sets and electronics at special recycling centers or during local electronics pickups.

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The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

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The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

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[1] http://briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-august-12-2013.htm

[2] http://www.cnbc.com/id/100964589

[3] http://www.reuters.com/article/2013/08/13/us-usa-economy-idUSBRE9770K220130813

[4] http://www.reuters.com/article/2013/08/15/us-usa-economy-phillyfed-idUSBRE97E0PZ20130815, http://www.bloomberg.com/news/2013-08-15/industrial-production-in-u-s-was-unchanged-in-july-fed-says.html

[5] http://www.cnbc.com/id/100967994

[6] http://www.cnbc.com/id/100928545

[7] http://www.reuters.com/article/2013/08/15/us-usa-economy-housing-nahb-idUSBRE97E0OK20130815

[8] http://www.cnbc.com/id/100967912

[9] http://www.cnbc.com/id/100963223

[10] http://www.cnbc.com/id/100961893

Robert G. Miller, CFP� , RFC, LUTCF
The Miller Financial Group
7700 West Camino Real
Suite 400
Boca Raton, FL 33433
561-353-3700
[email protected]
http://www.tmfg.com