The anticipation was hanging like a cloud over the stock market all week, and when we finally heard from Janet Yellen yesterday, the stock market barely flinched. It actually rose for a bit following Yellen’s moderately hawkish comments that it was time for the Fed to raise rates, and all was looking good for an upside Friday close. Then Fed Vice Chairman Stanley Fischer chimed in that a rate hike really WAS a likelihood in 2016, and stocks faded enough to finish the day with the Dow and S&P 500 slightly lower and the Nasdaq slightly higher.
That wrapped up an inconclusive week, and while investors were looking for some sort of catalyst, a clear one did not emerge. For the week, the Dow was down 0.9%, the Nasdaq was down 0.4%, and the S&P 500 was 0.7% lower. We are still holding up well, and the major indices are still within striking distance of their all-time highs, but we will just have to wait and see what next week has in store for a stock market that is desperately looking for direction.
Yellen commented in her Friday speech that the labor markets were strong and that the economy was growing moderately well. That backed up her comments that a rate hike was possibly on the way. The one problem with her view, though, was that the second quarter GDP number was revised down to 1.1% from the previous 1.2%. That is not exactly the sign of a booming economy that could handle an interest-rate hike. In fact, it is more of a sign of an economy that is teetering toward a recession footing.
Add to this scenario the dip in the University of Michigan consumer sentiment number that fell to 89.8 from July’s 90.4, and you can see why the stock market was a bit nervous on Friday. Economists were looking for a 91.0 reading, so once again, we are seeing shortfalls in various economic reports that raise concerns. A Fed rate hike in September COULD rattle markets, and that would just create a bigger downward decline in consumer confidence that COULD trigger a broader economic slowdown. This shows why the Fed is in such a tough position right now with regard to interest rates.
Yellen put a big emphasis on the employment picture as rationale for a rate hike, so all eyes will be on next Friday’s government jobs report. Economists are looking for 189,000 new jobs, which would be down from July’s stellar 255,000 number, so a topping of the 189,000 would be a positive sign for the economy. Too good of a number, however, would give the Fed a “thumbs up” for a September 21st rate hike, so we are back in that “good news” is “bad news” frame of mind for the stock market.
Maybe the Fed is doing the right thing in PREPARING the financial markets for rate hikes, even if it does not act in September or November. The Fed is being very clear about its intentions, and believe it or not, the Fed launched its own Facebook (FB) page last week. The snarky and cynical posts were immediately there from viewers, and the Gorilla bets that the FB quest at clarity will be short-lived. There are some great posts that showed up, so if you have a chance, check out the Fed’s attempt at being “cool” and having a Facebook page.
We close out August next week, and then we enter the historically tough September-October time of year, so be ready for anything. With the presidential race ongoing we can count on thrills and chills as we head toward November. This should make for a challenging couple of months, so keep those seat belts fastened tightly. The broader economy is showing some signs of strain, but for the most part it is holding up well. Even the housing market is showing signs of regional “bubbles,” which is both a plus and a minus. All of this should make for an interesting Autumn!
For those who wonder what the Fed Heads might have been doing the last couple of nights in Jackson Hole, the Million Dollar Cowboy Bar would probably have been a great, post-meeting spot to talk about interest rates and the economy. Locals say it is touristy, but where else can you sit at a bar on a horse saddle bar stool? It was probably a great place for the Fed Heads to unwind after some long sessions of monetary policy discussions! That said, the Gorilla wishes each and all a relaxing weekend, and we will be back in action on Monday!
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