Market Commentary, 10/13/16

The market’s yo-yo action this week – up Monday, down Tuesday, up Wednesday, down today – as Wall Street begins to digest third quarter earnings reports, emphasizes almost two years of uncertainty and today the Dow dropped below 18,000 for the first time since early.

In economic news, 156,000 new jobs were added in September; a gain, which, according to some analysts, is “good enough” to give the Federal Reserve Board a green light to raise interest rates

Employment: 11.5 million new jobs have been created since the bottom of the Great Recession (March 2009) but the available work force (i.e., people who would like to work) has grown such that there are more than 14 million people – the most in over a year – who would like to start earning a paycheck.

Interest Rates: A primary rationale for the Fed to continue to delay raising rates is that inflation remains extremely low; specifically the consumer price index (CPI) is up only 1.1% (annualized) as of August. That said, Core inflation (the CPI with food and energy prices excluded) is 2.3% through August, which is to say that a drop in food and energy prices has been masking the real inflation numbers, which are at or near the Fed’s 2% target. But energy prices have begun to stabilize and food prices will rise with the result being that very soon, overall inflation measures will be running higher than the Fed’s target. The significance is that Fed Chairperson Yellen would like to see inflation over 2% before increasing interest rates.

What does it mean: Market uncertainty will continue, somewhat due to the Fed-created “Goldilocks” effect –analysts want economic data to be good, but not so good that the Fed increases interest rates.

So we’re looking to the Fed to determine where to go from here, and while the next Fed meeting is not until November 1, several higher-ups at the Fed hinted this week that the historically low interest rates are doing more harm than good. Minutes from the September Fed meeting suggest that the decision not to increase rates at that time was a close call and now the Fed is looking to delay any action until after the Presidential Election. It appears that groundwork is being laid for a rate hike at the December 13-14 Fed Meeting and in the near-term such action would likely send the stock market down.

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

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