For the week of August 26 – August 30
Stock Markets
The major US stock indexes fell once again last week, capping off the worst monthly performance of the S&P 500 in over a year. However, the index is only 4.69% below its all-time intraday high reached on August 2nd. While fear that the Fed would vote to start ending extraordinary stimulus measures at the next meeting late in September was the main reason cited for the decline, thin trading volume in August and especially the week before Labor day may have made led to increased volatility and price declines. Another factor affecting the markets this week was a rise in oil prices due to geopolitical tensions caused by a potential US missile strike against Syria. In terms of other economic indicators, the Conference Board’s consumer confidence index rose to 81.5 in August, while the Thomson Reuters/University of Michigan consumer sentiment showed a decline for the same month. Another positive reading of the housing market came out last week with the Case-Shiller Index showing a 0.9% increase in home values.
Bond Markets
Prices of US Treasury bonds rose last week as investors fled to safety due to uncertainty surrounded the ramifications of a possible US attack on Syria. A report released early in the week showing a 7.3% decline in durable goods also led bond investors to be more cautious, although this sentiment was reversed on Thursday after the 2nd quarter’s GDP growth was revised up from 1.7% to 2.5%. However, US bond prices fell overall in August, making it the fourth month in a row of bond price declines (the longest streak in over 2 years). While bond market trading was light, as is usual in late August, higher quality high yield bonds had a good week as did mortgage-backed securities. Municipal bond mutual funds continued to experience outflows for the 14th week in a row, losing $1.7 billion in the week prior to August 28th. Puerto Rico’s bonds have been among the worst performers in the US municipal bond market and their prices declined further this week after Barron’s had a cover story highlighting the risk of losses for holders the territory’s debt. While the municipal bond market is down overall in 2013, Puerto Rico’s bonds have fallen by three times as much as the broad municipal indexes for the year to date period and will have their worst yearly decline in over a decade if trends continue.
Sources:
*Indexes are from Reuters and Yahoo! Finance 4pm closing data
*Gold prices are from EcoWin and J.P. Morgan Asset Management
*Treasury rates are from Bloomberg.com
*Municipal and high yield rates are from Barclays Capital
Past performance is not indicative of future results.
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