Market Perspective for August 17, 2015

Retail shares could see some activity as reporting season heats up. Wal-Mart (WMT), Home Depot (HD), Staples (SPLS) and Target (TGT) headline another significant week for the sector. Aside from retail, there are not many large companies reporting, although Hewlett-Packard (HPQ) and Deere (DE) are two names that will garner some attention.

The minutes of the previous Federal Reserve meeting will be released on Wednesday, along with inflation data. Housing data for July is also out this week. The Fed’s minutes will be closely examined because it was the last meeting before a possible September rate hike. Recent events, mainly China’s decision to devalue the yuan are also factoring into investors’ expectations of a Fed rate increase. Previously, the Federal Reserve seemed unconcerned about events overseas spilling into the U.S., but with oil prices at a new 52-week low and Asian currencies under pressure, that may change.

West Texas Intermediate Crude fell again and has now lost 30 percent over two months, closing at $41.87.  Based on the overall trend, a move into the high $30 range is a becoming a threat, though the odds favor a rally over the coming weeks.  Copper prices moved back towards their 52-week lows as well on Monday and a bottoming looks likely.

Currency markets will play a major role this week. Asian currencies continued to weaken thanks to the aftershocks from China’s devaluation. The U.S. dollar hasn’t strengthened much overall due to strength in the euro and a stable yen, though U.S. Dollar Index is only several percentage points below its old highs. Look for the currency markets and commodity markets to move in sync this week. It is unlikely commodities will drop on U.S. dollar weakness, or vice versa.

Finally, it is a distinct possibility there will be heightened market volatility over the coming weeks. Trading volume is lighter with increasing numbers of traders on vacation now through Labor Day. With lower volume and new, whether good or bad, can impact performance of the market to a far greater degree.  Moreover, if investors begin to a pushback in rate hikes, we could see a strong rally in equities, commodities, and a pullback in the U.S. dollar.

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