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MPCA Weekly Market Update (July 13, 2015)

| July 13, 2015

Three issues have bedeviled the equity markets over the past several weeks, and the news on all three has been encouraging enough to allow for at least a sigh of relief.  First, the Federal Reserve’s decision in mid-June to keep the federal funds target rate at 0-0.25% mitigated fears of a June tightening.  Investors will likely get a breather until the Fed’s meeting in mid-September.  Even then, Fed members seem to be going out of their way to assure markets that when the long-awaited tightening cycle begins, the pace will be more measured (read “slower”) than in the past.

Next up is the mess in Greece.  Investors hopefully understand that Greece’s debt represents only 2% of the total GDP of the European Union.  Even so, the U.S. market is in relief rally mode this morning on news of the “agreekment,” and while we welcome the news, we would remind readers that the Greek Parliament must still pass the plan.  Substantial issues remain, and the euro, after an initial bounce in trading today, has turned negative.  All eyes will be on the Greek Parliament when it votes on Wednesday.

Lastly, and potentially more problematic in our view, is the recent volatility in China’s equity markets.  To review, from 3/31/15 through 6/12/15, the Shanghai Composite Index posted a total return of 38.05%, according to Bloomberg.  This move was notable since Chinese stocks had been lagging many other major global equity indices in the current bull market.  From 6/12/15 through 6/30/15, however, the index plunged 16.87%, and the carnage continued into July until stabilizing over the past two trading days.  While global markets cheer signs of stability in Chinese trading, our concern is with the level of intervention required by the Chinese government to stem the downturn.  The path to open markets free of government manipulation in China remains highly uncertain from our vantage point.

Finally, an encouraging note from the U.S. labor market.  One statistic that does not command a lot of attention is the monthly Job Openings and Labor Turnover Survey (JOLTS).  While many focus on the number of new jobs created or the unemployment rate, the JOLTS release tracks job openings in the U.S.  As of April 2015, that number stood at 5.38 million, the highest in a decade and more than twice the 10-year low of 2.15 million set in July 2009, again according to Bloomberg.  That is good news for American workers, and bodes well for consumer spending going forward.