The Markets: July 27, 2015

7.27.15

There was a spate of bad news last week, and it drove U.S. markets lower.

China’s wild ride isn’t over yet. The Purchasing Managers’ Index, a private measure of Chinese manufacturing, came in below expectations at 48.2, according to BloombergBusiness. Results below 50 indicate the sector is contracting. That doesn’t bode well for growth in China, which is the biggest global consumer of metals, grains, and energy, or the rest of the world.

Things weren’t rosy in the United States either. Sales of new homes in June came in below expectations, and the median new home price fell from a year ago. That news was a U-turn from recent data indicating strength in the housing market.

Earnings news was also less than stellar. The Standard & Poor’s 500 Index is kind of pricey, according to Reuters, and second quarter earnings for companies in the index were mixed. Seventy-four percent of companies beat earnings expectations but not nearly as many delivered on expected revenues.

Earnings weren’t the only issue on investors’ minds. Last week, the Federal Reserve has signaled a September rate hike was a possibility. This week it inadvertently released a confidential staff forecast that included estimates for inflation, unemployment, economic growth, and the fed funds rate. The Washington Post reported:

“Currently, the fed funds rate is between 0 and 0.25 percent, the same level it has been since the financial crisis hit in 2008… The staff prediction is that the prevailing fed funds rate during the fourth quarter will be 0.35 percent. Though there is no reference to exactly when or how that could happen, analysts say the most likely way is for the central bank to raise its target rate in September.”

Experts cited by Barron’s cautioned, “…it’s not the first rate hike that’s important. It is what comes after that.” Stay tuned.

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