Recap: Week Ending September 18, 2015

September 19, 2015

After seeing gains to the upside last week, American stocks took a nose dive following remarks from Federal Reserve Chairwomen Janet Yellen on Thursday. Despite being up almost 500 points early in the week, the Dow Jones Industrial Average closed the week down 48 points, the equivalent of a 0.3% loss. Last week the Dow was the worst performing index in the United States. On the flip side, the NASDAQ 100 index was able to sneak out a 0.01% gain last week after being up over 115 points earlier in the week. For the most part, the economic calendar was rather light in both Canada and the United States last week with Thursday being the only exception. Last Thursday the United States Federal Reserve, or Fed, announced that they would keep interest rates targeted at 0-0.25% until at least their next meeting that is scheduled for October 27 & 28. This announcement was of high interest to many because at past meetings the Fed hinted at a rate hike in September. Regarding a rate increase, Yellen once again reiterated, “To be clear, our decision will not hinge on any particular data release. Or on day-to-day movements in financial markets. Instead, the decision will depend on a wide range of economic and financial indicators.” It is believed that the volatility seen in markets in August is another reason the Federal Reserve did not raise rates. Chairwomen Yellen went on to state that, “The outlook abroad appears to have become less certain.” This is not the news that equities were looking for, and as a result sold off sharply. On Friday, the Dow Jones Industrial Average closed the day down 290 points or 1.74%. Such dovish remarks in regards to a delay in raising rates would have sent markets higher on historical standards. With this being said, the notion that the Fed is concerned about the global economy sent shivers through global markets. One of the biggest winners on the week as a result of the press conference was gold, which has staged a three-day rally to close the week up $31.20 or 2.82%. The move higher in gold comes as investors are looking to park their money in a safer investment, which gold has historically been known to be. Another winner on the week was the price of US Treasury Bonds. As the Fed increases rates the price of bonds will fall, however, since the Fed delayed its increase, the prices of bonds shot up. The 30 year US bond, which is least impacted by moves from the Fed rallied $0.84 or 0.54% last week to settle at $155.94. The move higher in bonds is also a signal that investors are looking to park their money in a safer asset, similar to the situation with gold.

 

Despite downside seen in US equity markets, the Toronto Stock Exchange, or TSX, had a solid week, closing up 185 points or 1.38% to settle Friday at 13,646.90. The move higher in the TSX comes as the price of gold rallied, supporting the bottom lines of many Canadian companies that produce gold. With this being said, for the past five weeks the TSX has been establishing an area of value at lower levels where it continues to trade horizontally. This area of established value is right above its 200-week simple moving average. It must also be noted that the TSX has been unable to see upside like other major indexes have following the extreme downside activity that markets around the world saw in August.

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