Interest Rates, the Fed, Unemployment Dent the Markets
Longer dated US Treasuries moved up sharply after reports on unemployment and comments by our Federal Reserve Chairperson, Jerome Powell.
For the week, the S&P 500 was down (.40%), the Nasdaq Composite down (3.21%), the Small Cap Russell 2000 down (3.78%), while the Dow almost broke even, finishing slightly down (.02%) for the week. The International Markets also participated moving downward with the MSCI EAFE down (2.34%) and the MSCI Emerging Market Index down (4.49%).
The Barclay’s Aggregate Bond Index fell (.76%).
Fed Chair Jerome Powell
After the 1st of 2 Employment reports last week, Fed Chair Powell said on PBS that interest rates remain “accommodative,” but that policy is headed toward “neutral” and possibly beyond. “But we’re a long way from neutral at this point, probably.” This contributed to the 10 Year US Treasury Yield increasing from 3.06% the prior week towards 3.22%. Friday’s job employment report showed less jobs created in September, however that was written off to the impact of Hurricane Florence. This report places yields on the 10 Year at a 7-year high!!
We began 2018 with a 10 Year US Treasury yield of 2.41%. In late January, the yield moved up to 3%, causing a 10% Stock Market decline in 10 business days. The Market needed to come to grip with the fact that the economy is moving forward and rates simply needed to catch up. Well, the Market quickly recovered from that decline and moved forward. So now, here we are again, with rates moving upward out of the previous trading range of 2.8 to 3%. Are we truly in a new bond trading range? If so, how high is the range and what will the impact be on US Stocks? As always, time will tell!!
Interestingly how quickly the media’s attention is no longer on Judge Kavanaugh!!
Third Quarter Earnings versus Issues!
Later this week, we’ll begin to hear 3rd quarter Corporate Earnings reports, which are expected to increase by the high teens to 20%. We’ll be curious to hear what CEO’s have to say about the impact of the trade war, interest rates and their opinion for growth of their company going forward. I expect earnings to be very good, as the US Consumer is very strong and continues to spend.
So what’s out there that can slow down this fast moving US Economy that needs to be followed; the Trade War, Rising Oil prices, Rising Interest Rates, Italy, and Emerging Markets. Also there is a concern that inflation is starting to rise which can force the Fed to raise rates sooner and higher.
One of the major Investment Firms base case for 2019 is a full-scale Trade War, with 25% US tariffs imposed on all Chinese goods. WTI Oil in the US now costs $74.34/barrel, up from $60.42 on 12/31/2017, a 23% increase. Over the pond, Brent Oil has moved up from $66.87 to $84.16/barrel, a 25.9 % increase. Part of the reason given for the increase, is the upcoming November Sanctions that the United States will place on Iran. Italy’s bond yields have moved aggressively higher with concerns of their fiscal soundness and Emerging Markets have been hurt by a strong US dollar and other factors.
The good news, there has always been issues!!!
Market Trillions: The size of the US Bond market is $42 trillion, the size of the US Stock market is $32 trillion. The size of the US economy is $20 trillion and the Chinese economy $12 trillion.
Rents Vary Plenty: The median cost to rent a 1-bedroom apartment in San Francisco is $3,400. In Omaha, Nebraska, the cost is $825 and in Charlotte, North Carolina, $1,275/month.
2008 Jailbirds: 45 Investment Bankers worldwide received jail time as a result of the 2008 Global recession. 25 Bankers in Iceland and just 1 Investment Banker from the United States. The one in the US received a 30-month sentence for “fraudulently inflating” the prices of mortgage-backed securities (source: Financial Times)
Medicare Open Enrollment
This is a reminder that Medicare Open Enrollment runs from October 15th through December 7th. Please be on the watch for an upcoming Blog reviewing the Open Enrollment Period, as well as changes to the Part D Prescription Drug Plan for 2019.
For information on our upcoming Medicare Workshops designed for people who have NOT yet signed up for Medicare,
please click Medicare Workshop.
Question of the Week
Medicare Part B covers Medical services, such as Doctor Visits, Diagnostic Tests and Procedures.
What percentage of the cost of Part B services does Original Medicare Pay? (Assumes no Medicare Supplement or Medicare Advantage Plan)
Answer to Last Week’s Question of the Week
During the 1997 World Series between the New York Yankees and the LA Dodgers, Reggie Jackson hit a record of 5 home runs in the series. In the 2009 World Series between the New York Yankees and the Philadelphia Phillies, which Philly also hit 5 home runs, tying the record?
a) Ryan Howard
b) Carlos Ruiz
c) Jason Werth
d) Chase Utley
e) Shane Victorino
The correct answer is –
d) Chase Utley – (Certainly miss the Philly team from those years!)