Good News, Bad News

August is usually a slow month in the markets as summer comes to a close and vacations wind down, but this past August has seen more activity than usual. The somewhat rocky month was mainly due to concerns that the United States might intervene in the Middle East with a military strike against Syria, and by rising oil prices. On the plus side, month-end economic figures lifted spirits and stock prices. Here’s an overview of the month’s activity.

As August drew to a close, the stock market reacted to good news, and positive economic reports outweighed worries about a conflict in Syria. The economic data that lifted stocks included reports showing U.S. economic growth of 2.5 percent annual rate for the period from April 2013 to June 2013 (a greater rate of growth than previously forecasted). The numbers were revised up from 1.7 percent as more U.S. companies exported goods and imports declined. In addition, the number of people who filed for unemployment dropped to 331,000 – the fewest in five years, according to the Labor Department.

Investment experts reacted to the encouraging economic reports, noting that the positive U.S. economic data had offset worries about Syria and that the month’s previous volatility had created a great buying opportunity for individual investors. Few market gurus are making predictions for the last quarter – most are waiting for more information from the Fed and more economic data. But the few who are making predictions seem to be favoring the technology sector.

What should we make of August’s previous volatility? Uncertainty swept through the markets worldwide as investors pondered the possible consequences of a U.S-led strike against Syria. Wall Street was no exception. Why is Syria causing such market fluctuations worldwide? Investors fear that any type of strike against Syria could end up involving the U.S. in Syria’s civil war – and if the hostilities escalate, a strike might ignite regional conflicts where much of the world’s oil supply is located. Fears of escalating warfare pushed oil prices to a high of $112 per barrel in August before prices declined somewhat at month’s end.

Some U.S. traders with a bullish bent continue to advise investors that volatility is back to stay for a while. They believe that the recent tension in the Middle East is just one of many factors. Other domestic issues contributing to increased volatility include worries about the Federal Reserve’s plans to pull back on its bond-buying program. The Federal Reserve’s policy committee is slated to meet in September to discuss future plans for the $85 million a month stabilizing effort. Investors have previously demonstrated that hints about an impending end to the program make them very nervous. In the past, fears that the Fed would pull back on its bond purchases provoked turmoil in the market.

There are also indications that we will see more clashes on Capitol Hill when the U.S. hits the debt ceiling. The Treasury Secretary has warned that this is likely to occur in October. Unresolved budget issues and the heated debate over raising the debt ceiling are likely to fuel major discord in Washington. This turmoil will most likely spill over into the business community, making investors nervous and anxious.

The commentary above is general and is not intended to replace the advice of professional tax and investment advisors.

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