Market Commentary, 10/10/16

U.S. stocks fell modestly last week as investors awaited the start of the 3rd quarter earnings season. All major indexes finished in the red. In U.S. economic news, the economy added 156,000 new jobs last month; a gain “good enough” that some analysts suggest will give the Federal Reserve the green light to raise interest rates.

An interesting occurrence is that as the U.S. economy continues to create jobs, there still appears to be no shortage of people looking for work. The U.S. economy has added over 11.5 million jobs since the bottom of the Great Recession, but that growth has slowed over the past 6 months. The slowdown is leading some to speculate that we are nearing full employment. However, over the past year, the available work force has actually grown, as there are more than 14 million people out there who’d like to start earning a paycheck, the most in more than a year.

One of the largest excuses for the Fed to hold off raising rates is that inflation remains extremely low; specifically the consumer price index is up only 1.1%. The “core” measures of inflation, which exclude volatile food and energy prices, are not nearly as contained as overall measures. And before you say everyone has to eat and drive, realize that both food and energy prices are volatile and global in nature. They do not always reveal true underlying price pressures.

The Core CPI is up 2.3% in the past year. In other words, a drop in food and energy prices has been masking underlying inflation that is already at or near the Fed’s 2% target. Energy prices have begun to stabilize and food prices will rise again. As a result overall inflation measures are going to be running higher than the Fed’s target soon.

While there is not a Fed Meeting in the near future, there are several members of the Federal Reserve that are scheduled to speak this week. If the Fed plans to hike rates in December, now is the time to warn the market. This week presents a big opportunity to get some insight into the intentions of the Fed ahead of the December Fed Meeting.

Wayne Copelin, CFP®
President, Copelin Financial Advisors, Inc.
514 Brooks Street
Sugar Land, TX 77478
Phone (281) 240-2902
Fax: (281) 240-2856
sugarlandfinancialadvisors.com

Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc.