Gas Prices, Jobs and Apple
Last week Oil prices reached the upper $60’s a barrel which propelled gasoline prices higher approximately 13% in 2018. In 2017, OPEC and its 14 members enacted production cuts. This in combination with increasing Global demand and Middle-East tensions has oil as of this writing, over $70 a barrel. If oil continues to rise, that will certainly add to the bucket of concerns that has Market/Economy watchers eyeing inflation.
Interest rates on the US 10 year ended the week @ 2.94%, slightly up from the week’s prior reading of 2.93%. The Federal Reserve concluded its 2 day meeting leaving interest unchanged, however did acknowledge the fact that inflation has elevated. Certainly not a surprise here!!
The jobs report last Friday, showed an increase of 164,000 jobs with the unemployment rate falling to 3.9%, the lowest rate since December 2000. My question is with such a low unemployment rate, when will we see increased pressures to wages?
The market indexes were down for the week as of last Thursday, however Apple’s robust earnings and revenue along with comments from Warren Buffett moved the markets back up to finish slightly in the black for the week. Year to date, the markets as a whole are flat with the overall bond market off slightly over 2%.
Corporate earnings are hitting records, Bond Yields appear to be attempting to stabilize. Will this finally move our Equity Markets north? In my opinion, the answer is yes in the short run, however as always, time will tell, always does!
The Week Ahead
This week we’ll see reports on inflation, with the Producer Price Index on Wednesday, followed by the Consumer Price Index on Thursday and Import Prices on Friday. I wonder what Tariff talk, if any, we’ll hear about this week?
Question of the Week?
Which of the following is still a valid strategy for claiming your Social Security Retirement Benefit?
A) Life Expectancy Method
B) File and Suspend
C) Restricted Application
D) Earnings Test
Check in next week for the answer!
Answer to Last Week’s Question of Week!
The question was, “Which term describes a bond or bond funds interest rate sensitivity?”
A) Coupon B) Yield to Maturity C) Duration D) Discount Rate
The answer is C: Duration
Duration is a measure of the sensitivity of the price — the value of principal — of a bond investment to a change in interest rates. Duration is expressed as a number of years. Bond prices are said to have an inverse relationship with interest rates. All things being equal, if a bond has a duration of 5, its principal value will drop by 5%, if rates move up 1%. In reverse, if rates move down 1%, a bond with a duration of 5 will see a principal value increase by 5%. This does not include the coupon (dividend) that the bond is scheduled to pay during this period of time.
Other Multiple Choice Definitions:
The Coupon rate is the actual amount of interest income earned on the bond each year based on its face value. Years ago when bonds were in paper form, they had “coupons” along the bottom which the bond holder would “clip” off typically twice per year when interest was due. They would then deposit the coupons in their bank account.
Yield to Maturity:
Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. It is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity and if all payments are made as scheduled.
The discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve’s discount window. The discount rate also refers to the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.