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Stocks continued their rollercoaster ride last week, dogged by worries from Washington and a plunge in biotechs that pushed the major indexes lower. For the week, the S&P 500 lost 1.36%, the Dow fell 0.43%, and the NASDAQ dropped 2.92%.1
Government Roadblocks Ahead?
Amid concerns about an October government shutdown, House Speaker John Boehner announced that he would resign his position next month to avoid leadership turmoil. While many analysts believe that his departure reduces the risk of an October shutdown, it could increase the risk of an end-of-year standoff. Republicans and Democrats are squaring off again over fiscal policy and the added drama of next year’s elections could cause the fight to drag out to the end of the year.2 Will the Fed have to consider Washington politics in its rate decision? We’ll see.
Fed Clarifies Rate Thinking (Somewhat)
Federal Reserve Chairwoman Janet Yellen clarified the Fed’s position on rate hikes in a speech last Thursday. She emphasized that the Fed is likely to raise rates this year, and that she is personally committed to that strategy. However, the decision will continue to rely on economic data and a rate hike is not yet certain.3 Her statement adds much-needed context to the Fed’s decision to keep rates steady and will hopefully give investors more certainty this week.
Q2 Growth Accelerated to 3.9%
We also got our final report on second-quarter economic growth, which showed that Gross Domestic Product (GDP) grew faster than originally expected. The revised data shows that the economy grew at an accelerated rate of 3.9% last quarter, driven by stronger consumer spending and construction.4 Hopefully, the increased pace of consumer spending – which drives two-thirds of economic activity – held into the third quarter (this quarter ending Sept 30)
Week Ahead Packed with Data
Looking at the week ahead, analysts will be closely watching the September jobs report, which could sway the debate on interest rate hikes one way or the other. Investors will also be watching Washington to see how Boehner’s resignation will affect the budget battle. With several Fed officials giving speeches that could shed additional light on their internal debates, this week promises plenty of headlines for markets to digest.5
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