It has been a wild ride for the markets this summer. After a fairly calm
beginning of the year which saw moderate gains, stocks have been on a roller
coaster ever since. For the most part we have been rolling downhill, but the
start of the fourth quarter has been pretty strong. And it is not only stocks
gyrating wildly. Oil prices have been even more volatile this year. It is hard
to believe that oil prices were in the $110 per barrel range last year. The
decrease in oil prices of approximately 60 percent makes the volatility of
stocks look like a pebble hitting the ocean.Of course, several questions arise from what has happened this year. For one, will the gyrations continue? With regard to oil prices, the prevailing opinion is yes. We have a global economic slowdown at the same time Iranian oil is getting ready to hit the market. In years past, OPEC just throttled back production to keep oil prices stable. But this year they seem to be intent on hurting the U.S. shale oil business by supporting lower prices. On the other side of the coin, Russia's involvement in the Middle East is throwing more fuel on a fire and this is causing oil to rebound in the short run.
The next question is--how do these gyrations factor into the Fed's thinking as the Federal Reserve Board's Open Market Committee meets next week and in December with only these two meetings remaining to meet their own prediction of raising rates sometime this year. As we have said before, the Fed does not like uncertainty. The weak September jobs report adds to this uncertainty and this is why the markets feel that the Fed will pass on rate increases, at least for October. If they do raise rates, it would surprise the markets and this would go against the Fed's goal of making sure the markets are prepared for their next move. And that surprise would cause more volatility.
Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.451-7797
C: 650.766.8500
mike@mikeervin.com
