Weekly Market Commentary Sept 8, 2015

Stocks declined across the board, giving back the prior week's modest gains and falling further into the red for the year. The Dow Jones Industrial Average finishing the week down 541 points, shedding -3.3% to 16,102. The S&P 500 Index fell 68 points, dropping -3.4% to end the week at 1,921.  

The Nasdaq Composite dropped -3.0% to close at 4,684. The S&P MidCap 400 Index closed the week at 1,386, down -2.8%. The Russell 2000 fell -2.3% to end the week at 1,136.  

The MSCI ETF "EFA", the proxy for developed international equity markets, was off -4.7% for the week. Emerging markets, as represented by the MSCI ETF "EEM", plunged 4.9%.  

Domestic High Yield corporate bonds gained 0.3% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index.  

Equity Markets continued to sell off after more negative data from China intensified fears of a slowdown in global growth.  The yield on the benchmark 10-year US Treasury note dropped to 2.12%.  Oil prices continued to fluctuate but ended the week only moderately higher at around $46.50 for West Texas Intermediate and $50 for Brent Crude.  Pressure on prices remains heavy, with global drillers continuing to pump.  Both Russia and Venezuela commented this week that they would not reduce output, with the latter citing plans to increase production after receiving a $5 billion loan from China.    

In high-yield bond markets, the volatile market environment of recent weeks caused issuers to pause on new deals, as no new high-yield debt was issued for the week ended August 28th.  Investors pulled $714 million from high-yield investments during the week ended September 3rd.  As of September 3rd, the Effective Yield on the Bank of America Merrill Lynch High Yield Master II index stood at 7.3% with the Option-Adjusted Spread at 5.7%.  Energy companies continue to show weakness in the high-yield space, accounting for 7 out of 11 high-yield issuer rating downgrades from Moody's in August.      

Rival rating agency Standard and Poor's downgraded 25 highyield issuers, with energy firms also representing 7 of the downgrades.  The US trailing 12-month speculative default rate rose to a two-year high in August at 2.4%.  Alpha Natural Resources Inc., ASG Consolidated LLC, SandRidge Energy Inc., Samson Resources Corp., Wilton Holdings Inc., SAExploration Holdings Inc., and Halcon Resources Corp. each defaulted in August.  Also of note, the S&P US distress ratio rose to 15.5% in August, its highest level in more than four years.    

In US economic news, the August jobs report showed a gain of 173,000, positive but below expectations.  The unemployment rate declined to its lowest level since April 2008 at 5.1%.  It should be noted that the August jobs report is notoriously subject to sharp upward revisions.  Over the past five years August jobs data has been revised upward by an average of 79,000 and the revisions have been as high as 128,000.  The mixed report has economists divided on the likelihood of a September rate hike; while the report shows evidence of the job growth that the Fed has been waiting for, the current volatile markets could give them reason to pause until year-end.  In other economic reports, the ISM manufacturing index for August came in at 51.1, indicating the slowest rate of growth for the factory sector since May 2013.  The US trade gap narrowed to -$41.9 billion in July following a revised -$45.2 billion reading in June, a positive reading that will likely provide some lift to third-quarter GDP estimates.