|Dow||-82.98 to 17,766.48|
|S&P 500||-13.55 to 2,079.28|
|Nasdaq||-46.83 to 5,021.63|
|10-YR Yield||-0.021 to 2.381%|
|Gold||+$5.60 to $1,173.50|
|Crude Oil||-$0.90 to $58.21|
(Mike Larson is away today. Mike Burnick, editor of Martin’s Ultimate Portfolio and Ultimate Stock Options, is filling in.)
Federal Reserve officials seem intent on raising interest rates at some point this year. They have been talking the talk for months now, but the question is, will they walk the walk?
Just last week, New York Fed President Bill Dudley stated that as long as data on jobs and inflation cooperates, the Fed is on track to “begin normalizing monetary policy later this year” … That Fedspeak tells us higher rates are coming; it’s only a matter of when and how high.
But Dudley also gave himself and his colleagues on the Federal Open Market Committee (FOMC) some cover admitting that rate increases are contingent on “the absence of some dark cloud gathering over the growth outlook.”
|The Fed has signaled it wants to end the near-zero interest-rate climate that has prevailed since 2008.|
Perhaps the Fed is better at predicting the weather than the health of the U.S. economy, because ever since QE ended late last year, the Fed has been signaling that it wants to end the near-zero interest rate climate that has prevailed since 2008.
So far this year, the economic skies have been mostly cloudy, with a chance of recession at times. In fact, the Fed has repeatedly been forced to dial back its own economic forecasts because the actual data just didn’t lend much support for higher interest rates.
Friday’s report was bullish for employment, no question. The surprisingly strong 280,000 new jobs created last month is indeed a positive for the economy. But recall that it was only back in March when we saw a disastrous report; with only half as many new jobs as forecast.
And the U.S. economy shrank 0.7% during the first quarter of this year, the second contraction in the past 12 months, which was another unexpected negative shock in the data.
Still, the consensus believes the FOMC is on track for “liftoff” of interest rates sometime this year, most likely in September. The futures market forecasts a 53% chance the Fed will make its first move by then, up from a 48% chance prior to Friday’s jobs report.
|“The FOMC remains ‘data dependent’ and will err on the side of caution.”|
I won’t argue with consensus, but a 53% chance still isn’t much better odds than you’ll get flipping a coin.
Make no mistake the FOMC remains “data dependent” and they will err on the side of caution while waiting for the economic skies to clear.
And between now and the projected liftoff data in September, we’ll get to see second quarter GDP and a few more jobs reports, several inflation readings, and much more.
This week alone I’ll be watching key readings on:
The NFIB Small Business Optimism, due out tomorrow,
Thursday morning’s all-important retail sales report, and
Friday’s Producer-Price Index.
Then the Fed itself takes center stage for a two-day FOMC meeting next week. Stay tuned!
And while we wait for the Fed’s next fearless forecast … I’d like to know your take. Is the U.S. economy strong enough to stand on its own two feet with higher rates, or will the stock market buckle? Let me know YOUR forecast via our Money and Markets website and Mike Larson will be back later this week to peruse your responses.
|Other Developments of the Day|
Another police-related incident recorded on video is shaking up the cable-TV news agenda. A video shows a chaotic confrontation between teens and police at a community pool in Texas. Here’s a link to a seven-minute video of the incident recorded by a bystander. Included in the footage is the scene of a police officer forcefully throwing what is reported to be a 14-year-old girl in a bathing suit to the ground and sitting on top of her to subdue her. In another scene, it appears that a police officer pulls his weapon on a youth during a melee before quickly putting it back in his holster. The police chief Greg Conley said three officers responded after residents and a private security officer called police complaining that teenagers did not have permission to use the pool and had refused to leave. Several people complained that the teenagers had started fighting.
At Money and Markets publication time, two dangerous murderers were still on the loose, somewhere in North America. The pair escaped by cutting through steel pipes and walls at a prison in upstate New York near the Canadian border. Authorities say the daring escape might have been helped by insiders, and at least one prison worker is being questioned. The two prisoners were serving time for murder. “These are killers. They are murderers,” Governor Cuomo said. “There’s never been a question about the crimes they committed. They are now on the loose, and our first order of business is apprehending them.”
It’s back: With renewed stabilization of the housing market, Yahoo Finance reports that a possible trend seems to be re-emerging: the demand to invest in subprime loans. “We are beginning to see the opening up of credit and I think that’s a trend that we’re going to begin to see,” Brad Friedlander, head portfolio manager for Angel Oak Multi-Strategy Income Fund, was quoted as saying. Subprime loans generally are those made to borrowers with lowered credit ratings with higher risk of default. As we all should recall, it was the collapse of the subprime loan market — that helped ignite and intensify the late, great global financial crisis. But Friedlander said it’s not the same this time and that the practice will allow investors to get higher returns in a low-rate environment. Whatever the case, we can only hope that bankers and regulators learned their lessons from the last time around and we don’t end up in the same mess. What are the chances of that? Feel free to comment.
More on the world of crime: Prison officials in South Africa have confirmed that Oscar Pistorius will be released from prison Aug. 21 and go under house arrest. That date would be 10 months since the double-amputee athlete was sentenced by a judge after having been convicted of culpable homicide for killing his girlfriend, Reeva Steenkamp. Officials said the recommendation was based on the Olympic athlete’s good behavior in the jail.
The Fed … police videos … Subprime loans… Escaped murderers … Feel free to comment on these or any other topics at the website. Mike Larson will return tomorrow and will read through your responses.