Weekly Market Commentary

After beginning the week deep in the red, The Dow Jones Industrial Average finished up 183 points, gaining 1.1% to 16,643. The S&P 500 Index also finished in positive territory, advancing 18 points, or 0.9%, to finish at 1,989.  The Nasdaq Composite rose 2.6% to close at 4,828. The S&P MidCap 400 Index closed the week at 1,426 up 0.2%. The Russell 2000 added 0.5% to end the week at 1,163.  

The MSCI ETF "EFA", the proxy for developed international equity markets, was up 0.8% for the week. Emerging markets, as represented by the MSCI ETF "EEM", bounced back 3.2%.  

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.  

Stocks experienced severe price fluctuations, beginning with a Monday selloff that saw the Dow Jones Industrial Average plummet more than 1,000 points before ending the day down 588 points, or -3.6%.  The S&P 500 Index posted a one-day loss of -3.9% on Monday and the Nasdaq fell -3.8%.  Stocks bounced back sharply on Wednesday and Thursday, with the Dow posting 619 and 369 point gains, the largest two-day point increase in the history of the index.  Monday's panic selling drove the yield on the 10-year US Treasury note below 2% for the first time in nearly four months, down to an intraday low of 1.976%.  The 10-year note ended the week at 2.18%, up from the prior week.  Oil prices were extremely volatile, crashing to below $38 a barrel for West Texas Intermediate early in the week before surging 10% on Thursday, the largest one-day rally in six years.  West Texas Intermediate finished the week around $45.23 and Brent Crude was trading at $50.00 as of Friday.  

Investors withdrew $1.602 billion from high-yield bond funds during the week ended August 26th.  New high-yield issuance ground to a halt with just $1.3 billion issued across three transactions.  Spreads continued to widen and the average bid on high-yield bonds dropped to 96.78 according to S&P Capital IQ's LCD.  The Moody's Liquidity Stress Index (LSI) for US speculative-grade companies, a measure of high-yield corporate liquidity, reached a five-year high of 4.8% in mid- August as low oil prices took their toll on energy   
companies.  LSI rises when corporate liquidity weakens and falls when it improves.  Energy-related debt is clearly dragging down the high-yield market as a whole, and conditions for stressed oil producers could worsen in the coming months if oil prices remain depressed.  Credit lines issued by banks to oil drillers typically take into account the value of the borrowers' oil reserves.  With crude prices at their current depressed levels, many drillers will likely see their credit lines significantly reduced.          

In US economic news, second-quarter GDP was revised higher from 2.3% to 3.7%, exceeding analysts' estimates of a 3.2% revision.  Consumer demand was strong, largely driven by vehicle spending.  A strong increase in residential investment also contributed to the higher-than-expected revision.  New home sales rose in July, up 5.4% to an annual pace of 507,000.  Year-on-year sales are up 26%.  Weekly initial jobless claims fell 6,000 in the week ended August 22nd to 271,000.  The four-week moving average rose slightly to 272,500.  Continuing claims, reported on a one-week lag, rose 13,000 to 2.269 million.  New York Federal Reserve Bank President William Dudley, in a mid-week press conference, categorized a September rate hike as "less compelling" in the wake of global market volatility.  Both Dudley and Fed Chair Janet Yellen have indicated a preference for a rate hike some time in 2015, but current market conditions have made anything prior to December unlikely.    

In international markets, the roller-coaster ride in Chinese equities continued as the Shanghai Composite plunged -8.5% on Monday.  Chinese stocks continued to sell off until midweek, then reversed course in response to gains in the US equity markets and 140 billion yuan in fresh government stimulus.  Despite the late week surge, The Shanghai Composite still ended the week nearly -8% lower.