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Russ Koesterich | August 19, 2013 | Topics: Economic Outlook, Equities, Fixed Income
- Stock and bond prices both fell sharply as investor unease over geopolitical risks and Fed policy have been rising.
- If employment data continues at its current pace, it is very likely that the Fed will begin to taper at its September meeting.
- Investors should consider trimming exposure to areas of the market that look stretched (like US small caps) and that are vulnerable to rising rates (such as long-dated Treasuries)
Stock and Bond Prices Fall Sharply
As we have been discussing in recent weeks, volatility appears to have picked up from its summer lows and investor uncertainty has been rising. While there were some positives (including confirmation that Europe’s economy is finally expanding after six quarters of contraction), investor attention last week focused on escalating violence in Egypt and concerns over the likelihood that the Federal Reserve may be getting ready to scale back on its asset-purchase program.
Stocks experienced their worst weekly losses for the year last week, with the Dow Jones Industrial Average dropping 2.2% to 15,081, the S&P 500 Index declining 2.1% to 1,655 and the Nasdaq Composite sinking 1.6% to 3,602. Fixed income markets were not immune to the volatility, with Treasury yields experiencing their largest jump since June (prices move in the opposite direction of yields). The yield on the benchmark 10-year Treasury rose from 2.58% to 2.83%.
Geopolitical Risks are Rising
In addition to the human toll, the violence and political turmoil in Egypt is beginning to affect investor sentiment. The growing violence in that country is symptomatic of the rising geopolitical instability we’re seeing in much of the Middle East and North Africa. While it is impossible to predict the political outcomes, one thing is clear: Over the past year, instability has led to significant disruptions in oil production and exports from Iran, Iraq, South Sudan, Libya, Nigeria and Syria. Although energy output from North America is surging, reduced supply from the Middle East and Africa helps explain why oil is one of the few commodities that has experienced price gains this year.
Fed Tapering to Start in September?
In addition to the focus on geopolitical risks, investors remain highly attuned to the timing and scope of any potential change in monetary policy. The economic data last week was mixed (and included some weak industrial production and manufacturing readings), but investors focused on one number in particular—the weekly initial jobless claims report, which was stronger than expected.
The reason this number had such an outsized influence on investor psychology is that the Federal Reserve has been vocal that it is highly focused on labor market conditions. Fed officials have been fairly consistent in saying that if the labor market continues to improve at the current pace (about 190,000 new jobs monthly), the Fed is likely to start to reduce its asset purchases (aka “taper”) this fall, probably at its next meeting in mid-September. With that in mind, the key number to watch will be the August employment report due on September 6. If jobs growth in August matches the recent pace, the central bank is likely to start slowing the rate of its bond purchases next month.
We believe investors should consider reducing exposures to those areas of the stock market with stretched valuations and to assets that are vulnerable to rising real interest rates.
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Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial Investment Real Estate Broker in Arizona now for 15 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial and Landspecialist in Phoenix and a Landspecialist in Arizona.
WHETHER YOU LEASE OR OWN
NOW IS THE TIME FOR YOU TO EXPAND, UPGRADE OR INVEST.
In my opinion we are at bottom of the cycle in Commercial Real Estate in Phoenix, so there is only one way and it’s called we are going up again and now is the time for you to expand, upgrade or invest in Commercial Properties in Phoenix. The prices on deals I may get you will not be around forever.
IF YOU OR ANYBODY YOU KNOW IS IN TROUBLE WITH YOUR BUSINESS, AS MANY AMERICANS ARE IN THE MOMENT, AND ARE ABOUT TO LOSE YOUR COMMERCIAL PROPERTY, PLEASE CONTACT ME. IF YOUR BANK IS BEHAVING BADLY I MAY BE ABLE TO HELP YOU GET OUT OF SOME OR MAYBE A LOT OF FUTURE HEADACHES.
WAITING TO SELL YOUR LAND ? TIMES CHANGE / IT’S TIME
We barely could give land away the last few years, but times are changing. Even in those meager years, I sold more land across the state than most other brokers. Before the real estate crash I was a land specialist in Arizona with millions of dollars of transactions, but then I had to change and also sell other commercial investment properties, which was fun, but I am a Commercial Landspecialist in Arizonal, a Commercial Land Specialist in Phoenix and love to sell land, one acre to thousands of acres.
Since I was a Land Specialist in Arizona and a Land Speciaost in Phoenix many of my clients, Sellers and Buyers remember me and now they are calling me again, so this is the time to get back into land and none of my clients, including future clients, will miss out on getting their best deal.
Also, if you are up-side down on your land, like many Americans, and the lender is giving you a hard time, now is the time to put your land on the market. Lenders are making deals now with short sales. I have been working with banks for many years – I learned how to work with them.
If you have any questions about the 1 to 3 above, about Commercial Investment Properties in Phoenix or Commercial Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion in Commercial Properties in Phoenix or Commercial Properties in Arizona with you.Obviously I am also in this to make money, but it could be a win-win situation for all of us.
Please reply by e-mail firstname.lastname@example.org or call me 520-975-5207 (cell) 602-778-5110 (office direct).
Walter Unger CCIM
Kasten Long Commercial
2821 E. Camelback Road, Suite 600
Phoenix, AZ 85016
Office : 602-445-4141
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