August saw all three of the major U.S. stock market indexes fall into negative territory, as investors become more concerned about the possibility of rising rates and potential military action in Syria. Emerging markets, particularly Brazil and India, also took a hit in August as their economies weakened and their currencies fell against the dollar.

Jeff Saut, chief investment strategist for Raymond James, wrote in his regular commentary this summer that mid-July to mid-August was the first window of the year for a “meaningful decline to begin.” The domestic equity market did, in fact, lose steam over this period and could continue to do so, but “such pullbacks are within the context of a bull market,” according to his analysis.

 

	7/31/13 Close	8/30/13 Close	Change	Gain/Loss
DJIA	15,499.54	14,810.31	-689.23	-4.45%
NASDAQ	3,626.37	3,589.87	-36.50	-1.01%
S&P 500	1,685.73	1,632.97	-52.76	-3.13%

 

 

 

Meanwhile, investors seem to be looking for answers to several key questions, including when interest rates will rise and by how much. We may know more about where interest and mortgage rates will go after the Sept. 17-18 meeting of the Federal Reserve. This week’s August jobs report, expected to be released Sept. 6, is considered an important indicator of third-quarter strength and may factor into the Fed’s decision. If the report comes in strong, the central bank could set a date to begin dialing back its bond-buying program.

Investors’ eyes are also turned to Washington for answers on two main fronts. First, the world is waiting for clarification on whether the U.S. will engage in any military action in response to allegations that Syria used chemical weapons.

Second, Congress is expected to enter another debt ceiling showdown. They’re debating how to fund the federal budget before the debt ceiling is reached, which the Treasury department estimates will happen in early October. The administration has also raised the possibility of overhauling Fannie Mae and Freddie Mac to reduce the government’s role and risk in the mortgage markets, but no clear path has been outlined as of yet.

Questions also remain about who will become the next Fed chair and how the housing recovery may be affected if interest rates rise.

We did get clarity on student loan rates when the Bipartisan Student Loan Certainty Act of 2013 became law on Aug. 9. The new terms, retroactive to July 1, tie federal student loan rates to Treasury interest rates. Once established, rates will remain the same for the life of the loan. This should mean lower rates for current students, but future students could see an increase as Treasury rates likely will rise. The upper limit is capped, however. For example, undergraduate rates can’t go any higher than 8.25%.

September should bring some answers to outstanding questions that linger over the direction of the economy. In the meantime, please feel free to reach out should you have questions of your own about the economy, the markets or any other financial matter. I look forward to speaking with you.