The week before Labor Day is usually a quiet one for financial market participants, with calendars light on meetings and heavy on vacation time. However, financial markets face a series of key economic and policy events that could make this week a bit more significant. Today we expect to hear about the Federal Reserve’s “Beige Book”, a release of economic information that is likely to show that the economy is still moving ahead, albeit sluggishly, with more help than in any recent year from housing. The next real indication of the Fed’s future actions may be noted at the upcoming Kansas City Fed symposium on monetary policy in Jackson Hole, WY on Friday, August 31. If Bernanke and the Fed are ready to act as soon as the September FOMC meeting, his comments are likely to tilt toward the potential rewards of doing more quantitative easing.Also on Friday, August 31st, China will release its Purchasing Managers Index for August. Since peaking at 56.6 in late 2009 the Chinese PMI has been moving back toward 50, which is the dividing line between an expanding and contracting manufacturing economy, raising fears of a “hard landing” or 5% to 6% growth in real GDP. A hard landing reading on the Chinese PMI would be in the mid 40s or below, readings last seen during the great recession of 2008. LPL Financials’ research believes that the Chinese authorities have the scope, ability, and desire to engineer a “soft landing”, or 7% to 8% growth this year. Another round of fiscal policy stimulus in China is also likely to occur in the coming weeks and months, and any such actions would be welcomed by markets. In Europe this week, markets are digesting sovereign debt sales from Italy along with Eurozone business and consumer confidence for August. The reality is Europe remains in recession – some areas worse than others. German Chancellor Angela Merkel has had “tough talks” to reign in dissent and put boundaries on leaking premature information to the press. So why is our US equity market performing relatively well? Today the Dow 30 Industrial Average is at 13,106, just 200 points shy of the 13,338 posted last May! To be blunt, our economy is growing even though it is slow growth. Additionally, LPL Financial Research believes the Fed may signal quantitative easing at Jackson Hole this weekend and it is believed the equity markets would be pleased. If the Fed disappoints, market weakness would not be unexpected. Although it would not change our longer view of an improving economy over time with higher equity prices down the road. In my next letter I will discuss the future impact of owning bonds in a rising interest rate environment. – MarkThe opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. “Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is an unmanaged index and cannot be invested into directly. Past performance is no guarantee of future results. LPL Financial Research Weekly Economic Commentary dated 8/27/12.
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