Markets Remain Calm Despite Headline Noise

Look beyond the headlines to better understand what is driving the market trends that impact the credit union investment portfolio.

Despite the headline noise related to political and geopolitical matters, the financial markets remained relatively calm throughout August.

The S&P 500 was down as much as 1.8% by mid-month but ended the month slightly positive, and interest-rate volatility both realized and implied held near historically-low levels. That said, there are still several potential headwinds that could revive volatility from a nearly catatonic state.

September’s debt ceiling and budget debate is the first. If a budget bill and debt ceiling reset is not passed by Sept. 30, another government shutdown would ensue. Recent projections suggest the Treasury Department could continue using extraordinary measures to pay its bills until Oct. 13.


On Aug. 21, Senate Majority Leader Mitch McConnell (R-KY) said there is zero chance Congress won’t raise the debt ceiling. The base market expectation is that a deal will be struck, even if it means a short-term budget extension and debt ceiling lift. The United States has never had a technical default on its obligations, despite theatrics in previous episodes (namely 2011 and 2013), and few, if any, politicians would want to be attached to the first. However, Treasury bills maturity in mid-October are trading at yield premiums of approximately 10 basis points (bps) relative to September and November maturities.

Other headwinds include geopolitical tensions with North Korea, a lack of progress on fiscal reforms, particularly tax reform, and changes in bond-buying programs by the Federal Reserve and European Central Bank (ECB). Regarding the latter, the markets have responded relatively well to the Fed’s plans for initiating balance sheet reduction in the next month. The Fed has been transparent with its intentions, and the initial pace of reinvestment tapering is fairly benign.

Robert Perry heads the investment management team at ALM First Financial Advisors, LLC, the investment advisor to the TCU Portfolios. Read more about regulatory reform, inflation, and current market trends at

This market overview is provided by ALM First Financial Advisors, LLC, the investment advisor for Trust for Credit Unions. Read more from ALM First about the latest economic data releases and overall market trends at

September 4, 2017

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