The Federal Reserve will wrap up its all-important policy meeting precisely two weeks from today. There is a very real possibility we will get the first short-term interest rate hike since June 2006.
But is it a lock? What do the most recent figures on jobs and growth tell us, not to mention the latest Fed comments? Will they go … and is the market convinced it’s the right move?
The biggest potential development was today’s jobs report from the ADP Research Institute. It showed the economy added 217,000 jobs in the month of November, up from a revised 196,000 a month earlier and slightly above estimates.
|More people are heading off to work. How will the Fed react?|
Employment was decent across company size, though a clear dichotomy was evident between service-oriented firms and those focused on manufacturing. Services firms added 204,000 jobs, while manufacturers added just 6,000.
We won’t get the official Labor Department figures until Friday. But all else being equal, the data supports the case of people at the Fed who want to hike rates. That would include Atlanta Fed President Dennis Lockhart, who said today in Fort Lauderdale, Florida, that “the case for liftoff is compelling”
On the other hand, the news we got yesterday from the Institute for Supply Management was pretty grim. The group’s key manufacturing index dropped to 48.6 in November from 50.1 a month earlier.
That easily missed economist forecasts. More importantly, it was the weakest reading going all the way back to June 2009. Long-term Treasury yields fell sharply in the wake of the news, hitting their lowest level in more than a month.
|“The Labor Department figures support the case of people at the Fed who want to hike rates.”|
We didn’t get any upside market momentum or encouraging inflation news (from the Fed’s perspective) from the latest oil inventory figures or the commodities market in general, either. Crude briefly dipped below $40 a barrel after the Energy Information Administration reported a supply build of 1.2 million barrels in the most recent week. OPEC ministers also aren’t expected to cut output at the meeting they’re holding in Vienna this week.
Lastly among the cross currents were comments from Fed Chairman Janet Yellen. At the Economic Club of Washington, she downplayed concerns about weak inflation and the negative influence of foreign economic struggles. She also argued that the “economy has recovered substantially,” citing strong auto markets, solid housing spending and the positive influence of the wealth effect (read: Higher house and stock prices).
Bottom line: This is definitely a “live” meeting in the sense that the Fed could move. But whether it will or not remains to be seen.
I believe that no matter what they do in two weeks, you should expect more volatility, more wild swings, and more pressure on key corners of the debt and equity markets. That’s why the “caution first” investing strategy I’ve been advocating since early summer still makes all the sense in the world.
Now, I want to hear what you think about the conflicting signals on jobs and manufacturing activity? Are things getting worse, better, or staying largely the same for the U.S. economy? What does that mean for your investing strategy? And how do the remarks from Fed officials like Lockhart and Yellen factor in, if at all? You can add your comments to the discussion on this web page.
Black Friday and Cyber Monday are in the history books for another year, but there are still a few weeks left to the holiday shopping season. So what kind of season do you think it will be?
Reader Chuck B. said it’s too early to make a definitive call, but he had some opinions nonetheless. His take: “It remains to be seen how the holiday shopping has and will go. Apparently, online shopping did very well in the black days, while in-store business suffered at least a bit. There are still several weeks of December to go, though, and this will either make up the difference, or not.
“My guess would be that not as much business as hoped for will be done in that time, and the totals will be somewhat disappointing — especially to the large retailers. There may be some good sales in January. Amazon.com (AMZN) and a few other onliners will do well though, maybe showing significant gains.”
Reader Richard also suggested online retailers like Amazon.com are in the right place at the right time. His comments:
“I have to admit, I am dedicated to Amazon. Bezos has made it so easy to shop. Number one is service. Amazon tops the list. Number two, I received an email from Amazon stating that they had calculated my import duty wrong and they will be depositing a refund back into my account. Who does this? I would have never missed the $4.94.”
Reader $1,000 Gold added the following upbeat view on the economy and sales: “Cars are selling like crazy. People are driving everywhere now because of the low oil prices. Families are also stopping to eat, shop, and even take vacations. All this increased activity will translate into an improving economy.”
But Reader Jim said the economy still faces challenges that could put a damper on sales going forward: “This ‘recovery’ is like nothing we have ever seen. Two percent growth, 94 million not working, serious healthcare disruptions, and contract manufacturing don’t point to a great economy dead ahead — and this after six years of zero interest rates.
“Many key companies, like Deere & Co. (DE), are announcing layoffs and giving earnings warnings. Our big trading partners, Europe and Japan, are basket cases. We are slipping into another unwanted war with the wrong people in charge. They are worried about climate change. I do not see smooth sailing ahead.”
Thanks for sharing everyone. It is still early in the holiday season, and the news seems to be mixed as many of you noted. Online retailers like Amazon are grabbing significant market share, while offline retailers like Wal-Mart Stores (WMT) are struggling. I maintain we need to see both horses pulling in the same direction to bolster the broader economy, however. So the next couple of weeks will be crucial when it comes to fourth-quarter growth.
Late in the day, news broke of a mass shooting incident in San Bernardino, California. Early reports are sketchy, but there may have been multiple assailants and 20 or more people injured or killed.Federal and local law-enforcement swarmed the scene, and many people were seen on television exiting an office park with their hands up. It’s too soon to say more about it other than my thoughts are with the victims in this difficult time.
The European Central Bank meets tomorrow, and investors are wrestling with what kind of announcements to expect. The ECB is currently buying roughly 60 billion euros a month worth of bonds, and some expect policymakers to boost that amount. They could also cut interest rates deeper into negative territory, widen the pool of bonds to buy, or extend the length of their buying pledge past September 2016.
Of course, none of Mario Draghi’s Euro-QE is actually working to boost inflation — which is the whole point. I say that because we just got fresh out of Europe today showing inflation rose just 0.1% last month, half the rate economists expected. Core inflation fell to 0.9%, versus expectations for a reading of 1.1%.
Facebook (FB) founder Mark Zuckerberg and wife Priscilla Chan just had a new baby girl Max — and they revealed they will give away almost all of their wealth to charity in her honor. Specifically, they plan to donate 99% of the shares they own — almost $46 billion worth — over time.
The 2016 presidential election process is continuing to play out, even as many of us focus on economics and markets. The latest there? Democratic front-runner Hillary Clinton is pulling ahead, with 60% of Democratic voters falling into her camp, according to a new Quinnipiac University poll.
On the Republican side of the aisle, Donald Trump still leads with 27% support. But Ben Carson (16%) has fallen behind Senator Marco Rubio (17%), while Ted Cruz gained a few points to 16%.
So what do you think the ECB will do? What about Mark Zuckerberg’s plan — will such a large donation help make the world a better place? Any thoughts on where the election process is playing out, or how it might impact the economy? Let me know below.
Until next time,
P.S. Are you wondering where the greatest growth opportunities could be today?
A new report by Weiss Research Senior Analyst LARRY EDELSON has the answers you’re looking for.