September 2015

September 22, 2015

Despite news that interest rates would not be increased in September, the stock market endured a significant sell-off by week's end, presumably in response to the Federal Reserve's report that the economy isn't strong enough to warrant an interest rate hike. Of the indexes listed here, the Nasdaq and Russell 2000 posted slight gains, while the large-cap Dow and S&P 500 regressed. Only the Nasdaq has posted positive returns year-to-date while the other listed indexes have all lost compared to the close of 2014.

2014 ClosePrior WeekAs of 9/18Weekly ChangeYTD Change
S&P 5002058.901961.051958.03-0.15%-4.90%
Russell 20001204.701157.791163.350.48%-3.43%
Global Dow2501.662328.192326.45-0.07%-7.00%
Fed. Funds0.25%0.25%0.25%0%0%
10-year Treasuries2.17%2.19%2.13%-6 bps-4 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Federal Open Market Committee (FOMC) determined at its September meeting that economic conditions have not shown sufficient progress to warrant an increase in short-term interest rates. According to the FOMC press release, while there were improvements in the labor market with solid job gains and declining unemployment, inflation has "continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports." Also, "recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." As to when interest rates might be increased, "the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term."
As I stated in last month’s letter, falling import and commodity prices and a strong dollar have put more downward pressure on inflation. Even though recent U.S. economic and employment trends have been positive, in the end, fears about global disinflation seemed to weigh heavy in the Fed’s decision not to raise the federal funds target rate. As a result, moving forward the Fed should be very “data dependent”. In my view, unless we see the economy and inflation gain significant momentum, the Fed may not increase interest rates in the immediate future.
In the short term, I would expect more of the same, stocks gyrating to find a floor as we head into a typically seasonal strong time of year for stocks. Longer term trends still remain intact, with the U.S. being the most attractive place to invest globally and domestically focused companies, not hurt by the rising dollar and overseas weakness, leading the way.

As always, please contact me with any questions.
Nadim "Joe" Nahas, CWF®, AIF®
Principal/Portfolio Manager
nwk group
Phone: 415-248-2703
Fax: 415-362-0693

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The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.