What a week!  Stocks sold off sharply this past week on concerns over global growth.  In addition to weaker manufacturing numbers out of China, the FED minutes showed mixed opinions from the FED members and concern about global growth.  Most commodity prices fell as oil flirted with falling through $40 per barrel based on increased in inventory.  Gold prices rose based on China’s currency devaluation.  Treasury bond prices rose as interest rates fell.

So, you are probably thinking, what do my advisors think about this market drop?  First of all, we would point out that corrections are normal during every bull market.  We have gone four years without a 10% drop which is not typical.  Stocks have been priced higher than the historical average but nowhere near the levels seen in 2000.  The US economy is still growing and will likely continue to grow.  The strength of the financial system in the country has improved greatly since the financial crisis. Inflation is very low.  The FED is very accommodative.  On the other hand global growth is a concern.  Foreign central banks have been cutting interest rates and embarking on stimulus.  Aggregate US company earnings have been nearly flat caused by the collapse in oil prices and the strong dollar.

We would say this is more likely a correction rather than the beginning of a bear market.  We’ve been saying for some time that the strong dollar will hurt exports and multinationals.  That view has not changed.  We’ve also said that the consumer will be the driver of US growth.  That has not changed.  What has changed is that stronger economic growth overseas has been slower to materialize than previously estimated.

In economic news this week:

• The Commerce Department reported:
  • US home construction starts rose 0.2% in July from a month earlier to their highest level since October 2007.  Housing permits however fell by 16.3% in July.  June’s housing starts was revised upwards from an initial 9.8% to 12.3%.  The big increase in June was attributed to a deadline for tax incentives for multifamily housing in New York City.  Therefore, multifamily was largely attributable for the sharp increase in June.  In July single family housing starts rose 12.8% while multifamily starts fell 17% again due to the expiration of New York tax incentives.
  • US consumer prices rose a seasonally adjusted 0.1% in July, less than expectations.  Excluding the volatile food and energy categories prices also rose 0.1%.  Year over year consumer prices were up only 0.2%.  However, excluding food and energy consumer prices were up 1.8% from a year earlier.
• The Labor Department reported that first time unemployment claims rose 4,000 to a seasonally adjusted 277,000. The prior week claims were revised from 274,000 to 273,000.  The four week moving average of claims also rose 5500 to 271,500, still near a 15 year low.
• The China Caixin Manufacturing Purchasing Managers Index fell to 47.1 in August from 47.8 in July.  Anything below 50 represents contraction and by this number the contraction in China is accelerating.

Please call us if you have any questions,

Loren C. Rex, CFP^®, AIF^®                                                                               Erik Smith

President                                                                                                           Partner

Generations Financial Planning & Wealth Management                269-441-4143

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Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.  Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor.  Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.

These are the opinions of Loren Rex and Erik Smith and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.

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