Broker Check
Goodwin Financial Services Logo

2038 Vermont Dr.
Suite 107a
Fort Collins, CO 80525

(888) 257-6066

Get Office Directions

 


May 26, 2015 - Fed Upbeat About Economic Recovery

| May 26, 2015
Share |

Despite flirting with new records, markets weren't able to hold on to gains last week and closed mixed after comments about interest rates were made by Federal Reserve Chair Janet Yellen. For the week, the S&P 500 gained 0.16%, the Dow lost 0.22%, and the NASDAQ gained 0.81%.[1]

Yellen gave a speech Friday that underlined her determination to raise interest rates this year as long as the economic recovery continues. Though she didn't really say anything new, her comments underscore the fact that the Fed is committed to returning to normal monetary policy as soon as economists feel the economy can handle it. She also emphasized that interest rate hikes will be done gradually over a period of years, which should help cushion the blow to financial markets.[2]

Could Yellen have been floating the idea to see how markets will react to a more aggressive stance on interest rates? Possibly. If so, the next few weeks could give us an idea of how investors will treat the news. Her speech also highlights her optimism about economic growth despite some weak reports in recent weeks.

Last week's jobs report showed that the number of Americans filing new claims for unemployment benefits rose slightly to 274,000. However, the four-week moving average, a less volatile indicator, fell to the lowest level since April 2000.[3] Outside of the energy sector, which has lost thousands of jobs due to low oil prices, layoffs in the U.S. have been minimal in the past months.

Though jobless claims (a good indicator of layoffs) rose slightly, claims from Americans renewing unemployment applications fell to the lowest level since November 2000.[4] Currently, the overall trend is one of steady improvement in the labor market, which we hope will translate into higher consumer confidence and spending this summer.

Core inflation data also supports a move to higher interest rates later this year. The Fed has the "dual mandate" of keeping unemployment low and inflation stable and had tied monetary policy changes to two numbers: a headline unemployment rate of 5.2-5.6% and annual inflation of 2.0%.[5] While the employment goal has been reached, the inflation target has been more elusive.

While some economists have worried about too-low inflation, the latest Consumer Price Index (CPI) figures suggest that core CPI, the number most used by economists, rose 1.8% in the last year. This stable rise, just under the Fed's target, indicates that price pressures remain stable but are moving higher and closer to the 2.0% goal.[6]

Looking ahead, analysts will be closely watching Friday's second reading of the Q1 Gross Domestic Product (GDP) report. Unfortunately, the news isn't expected to be good, and many economists expect to see that the economy shrank amid harsh winter weather and dock strikes. However, there's considerable hope that the economy is rebounding in the second quarter (much as it did last year).[7]

ECONOMIC CALENDAR:

Monday: U.S. Markets Closed For Memorial Day Holiday
Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, New Home Sales, Consumer Confidence, Dallas Fed Mfg. Survey
Thursday: Jobless Claims, Pending Home Sales Index, EIA Petroleum Status Report
Friday: GDP, Chicago PMI, Consumer Sentiment

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Factory growth slows for second month. Growth in the U.S. manufacturing sector, a major driver of economic activity, slowed down for another month in May. New orders increased at a very slow pace, indicating that next month might be slow as well.[8]

U.S. gas prices at six-year low. Just in time for the summer driving season, pump prices across the nation are at a multi-year low. According to AAA, average gas prices were just $2.74 across the country. Hopefully, fuel savings will result in greater consumer spending.[9]

Greece can't pay its June bills. Greek leaders announced that they won't be able to make debt repayments next month unless they receive another round of rescue funding. Despite months of negotiation, it's unclear whether a deal can be reached that would prevent Greek insolvency.[10]

April housing starts surge. Groundbreaking and permits for new homes spiked in April to the highest level in over seven years, indicating that homebuilders were confident about future sales. March numbers were also revised upward in a very hopeful sign for the housing market.[11]


These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

  1. https://www.google.com/finance
  2. http://www.businessinsider.com/
  3. http://www.cnbc.com/
  4. http://www.cnbc.com/
  5. http://www.foxbusiness.com/
  6. http://www.foxbusiness.com/
  7. http://www.foxbusiness.com/
  8. http://www.cnbc.com/
  9. http://www.foxbusiness.com/
  10. http://www.marketwatch.com/
  11. http://www.cnbc.com/
Share |