Recap: Week Ending September 11, 2015

September 14, 2015

Despite a shortened trading week due to the holiday on Monday, equities across the globe traded higher. The move higher in stocks comes as an area of value is being established following the massive sell off seen in August. To no surprise, the NASDAQ 100 index led the way higher for North American indexes, closing the week up by 3.31%. On the flip side, the Dow Jones Industrial Average was the worst performing index in the United States, closing the week up only 2.05%. The Canadian equity picture was quite different than that south of the border with the Toronto Stock Exchange Composite Index, or TSX, closing the week down by 0.12%. Equities in the US saw a bid as the market continues to mull the idea that the Federal Reserve will raise interest rates on Thursday, September 17. From the activity last week it appears that the market believes that an interest rate hike will not occur at this meeting. Many believe that a move higher in US interest rates will signal the top of the rally for US equities as many are purchasing stocks on cheap low interest borrowed money. Part of the sell-off in August was related to fears of an increase in interest rates, such a sell off could be a sign of things to come if the Fed does indeed go ahead with the increase this week. A move higher in rates would send the price of the US Treasury bond lower, and that is exactly what occurred last week. The 30-year bond closed Friday at $155.10, falling $1 or 0.64%. As rates increase, yields on bonds will subsequently rise, and prices will fall. A rise in US interest rates should also cause a move higher in the US Dollar; however that did not happen last week. The US Dollar Index, which represents a basket of currencies, closed lower last week, settling Friday at $95.19, falling $1.05 or 1.09% last week. It appears that the overall market is sending conflicting signals as various asset classes are pricing in a different movements from the Fed. As a result, many may begin to believe that the Fed will not increase at this meeting. With this being said, due to the divergence in asset classes, an increase would cause large volatility in the markets.

 

For the second straight week, the TSX closed lower, falling only 16.84 points last week. The move lower comes as global equities are beginning to find their footing following the global equity selloff in August. With this being said, the TSX continues to be weighted down by crude that fell once again last week. NYMEX crude, which is the North American benchmark for the energy product fell $0.99 or 2.16% last week to settle at $44.78. Gold, which also has a strong presence in the income statements of many of the TSX constituents, fell once again last week, settling Friday at $1,107.90. The move lower in gold last week marks the third straight weekly loss with the precious metal which settled at $14.40 or 1.28%. A move higher in US interest rates would cause more selling in gold as gold is typically a hedge against inflation, and a move higher in interest rates is an attempt to control inflation. This week is considered by many to be one of the most important weeks on the economic calendar so far this year. Investors and traders must keep their eyes on the major indexes to see how the overall market is reacting to any news or lack thereof coming from the US Federal Reserve. A movement in interest rates by the Fed will set the tone going forward for the remainder of the 2015 calendar year.

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