The markets around the world had a very bad third quarter, with a great deal of volatility. Most markets moved down substantially. China admitted that their economy was growing much slower than was necessary to sustain their economy. At the same time, most other nations saw their economies slowing down as well. While China is a large nation, with a major influence on the Pacific Rim nations, it plays a very small part in the U.S. economy. As mentioned in my previous blog, China represents about 0.06% of our GDP, effectively zero impact!
Uncertainty is impacting the U.S. markets due to indecision by our leaders. Last week Congress extended the funding of the government until early December. Wonderful! Right around the holidays they’re thinking of shutting down the government. How would consumers, who have been in a spending mood, react to this action? By not spending money! Would this impact the economy? Yes, and right at year end, when the economy should be gaining strength. This indecision by Congress makes me mad, really mad. Making decisions is hard when you don’t know what will be happening.
Let’s look at the Federal Reserve (FED). They have been saying all year that they will be raising interest rates in the fall. Why? Because they see the economy growing and they don’t want it to get out of hand. Before the September meeting, FED members were talking about the strength of the economy. Then they voted NOT to raise interest rates. What signal did this send to the markets? The FED doesn’t really believe the economy is growing. Shortly after their meeting, news came out that GDP was growing by 3.9%! The indecision of the FED has also left the markets wondering about the U.S. economy. Janet Yellen, FED Chair, to her credit, did a wonderful presentation at the University of Massachusetts the Friday following the FED meeting, in which she gave a long list of why the U.S. economy is doing well and what it will mean for the future. The problem is that actions speak louder than words and it was too late. A small increase in the FED rate would have sent the correct signal.
Finally, the markets are waiting to see what earnings will look like for the 3rd Quarter. Indecision on what to do next is what’s happening across the board!
October 14. 2015