Recap of US Markets

Market tumbles

While the economic figures aren’t terrible, they are confirmation that the economic recovery will be slow. Economists and Fed Chairman Alan Greenspan aren’t surprised, but equity investors had unreasonable expectations about the economic recovery. Now they are disappointed. In addition to the problems with the economy, investors are also unsure how to deal with the repeated warnings of new terrorism on U.S. soil. To top it off, terrorist attacks in the Middle East are continuous. If there weren’t enough problems to deal with, corporate scandals are mounting and causing investors to doubt the veracity of financial statements. All this adds up to a very depressed market environment.

August rate hike priced out

During an economic recovery, it is reasonable to expect upward pressure on interest rates thanks to higher loan demand and Federal Reserve actions. Yet this recovery is different, marked by a weak stock market and international tensions. Treasury securities are a safe-haven against both. Consequently, bond investors are now starting to believe that the Fed will be more inclined to raise rates less quickly. Bond yields are down nearly 25 basis points across the board – that pretty much erases an August rate hike.