Weekly Investment & Economic Talking Points
- The big news for this week is that the Federal Reserve is expected to raise short-term rates on Wednesday. Expect another 25-basis point rise, but more importantly, we will be looking at the language in the news release to try to glean some insight into the FED’s plans going forward. This will be Janet Yellen’s last rate hike, as she will be replaced by Jay Powell in 2018.
- There has been a lot of chatter about what Powell may or may not do with interest rates but the key thing to remember is that he is the chairperson, not a solo act. There are other FED governors who also look at data and have an effect on interest rate policy.
- On Friday last week, it was announced that employers added another 228k jobs to their payrolls in November. Some of this is likely seasonal with the holidays, but the trend of lower unemployment continues (the rate now stands at 4.1%). If anyone is looking for a dark, or even gray, cloud in all of this one could point to the fact that wage growth is stuck in neutral.
- Wages have increased in the past twelve months, roughly 2.5% but analysts were hoping for more. If you think about it logically, with inflation at 2% or so, there is a .5% “delta” or “real” extra income which historically gets spent on consumer goods. .5% is OK, but if that “delta” increases that’s more money being put to work in the economy. It becomes a self-feeding mechanism. Lack of that delta means we are stuck in neutral in terms of consumer spending for now.
On my (short) commute in this morning, I was listening to the news of the failed terrorist attack in New York City this morning and was reminded of a couple things. 1) markets are super-sensitive to this type of thing and 2) markets overreact to these types of things. Obviously, it’s great news that no one was killed but futures did sell off violently when the news first broke. It’s important to let clients know that the recent market (S&P 500) run is unprecedented in duration in terms of consecutive positive months and that a correction can happen at any time. However, most importantly, the uncertainty of a correction, when it happens and how deep it will be, it why they have an allocation to bonds and assets other than stocks.