Stocks fell last week, with the S&P 500 losing 1.19 percent. This left the benchmark index up 1.33 percent 2016-to-date, and just 2.80 percent below the all-time high hit in May of last year. Volatility remained elevated during the past five trading sessions as the S&P 500 oscillated between being up 0.10 percent and down 2.18 percent for the week. A lot of this choppy price action was due to the latest decision on monetary policy from the Federal Open Market Committee (FOMC). Indeed, officials on Wednesday announced that the target range for the Federal funds rate would be left unchanged at 0.25 percent to 0.50 percent. It was widely anticipated that officials would hold steady with rates in June but the statement released by the committee was arguably a lot more dovish than expected. For example, the median forecast of the seventeen policymakers still implied two quarter-point rate increases for 2016 but the number of Fed officials who see just one rate hike occurring this year surged from one in March to six at this month’s meeting.
One apparent reason for this shift in expectations was May’s dismal job report because many Fed officials acknowledged that the pace of labor market improvement in America has slowed recently. In fact, the official unemployment rate has fallen by 0.8 percentage points over the past twelve months but Fed policymakers now project that the level of joblessness in this country will decline by just 0.1 percentage points over the next two-and-a-half years. It is worth remembering, though, that Fed sentiment can shift quickly, e.g. the hawkish April FOMC statement that had many market participants convinced that the Fed would hike in June. Further, near-term uncertainty surrounding this week’s “Brexit” referendum likely influenced policymakers. Fed Chair Janet Yellen said this much in a press conference following the policy announcement, adding that “It is a decision that could have consequences for economic and financial conditions in global financial markets. … A vote on June 23 by Britons to leave the EU could have consequences in turn for the U.S. economic outlook.” Regardless of what Fed officials decide to do with monetary policy over the next few months, savvy retirement investors are likely not overly concerned because they understand that persistent and long-term participation in the market, combined with dollar-cost averaging, can help them not only benefit from rallies but also turn drawdowns into opportunities. As always, we are here to help with any questions you may have.
To recap what we learned about the economy last week, the positives included that building permits rose, homebuilder sentiment lifted, small business owner confidence firmed, retail sales growth accelerated, and regional manufacturing activity rebounded. As for the negatives, mortgage and refinance applications declined, housing starts slid, the nation's current account deficit widened, the number of Americans making first-time claims for unemployment benefits jumped, industrial production contracted, capacity utilization fell, and inflationary pressures in the United States continued to build. This week the pace of economic data slows down considerably but there are still several important reports on housing, manufacturing, employment, and consumers scheduled to be released, along with a few potentially market-moving speeches from Janet Yellen and other Fed officials.
What To Watch:
- MBA Mortgage Applications7:00 AM ET
- FHFA House Price Index9:00 AM ET
- Stanley Fischer Speaks 9:25 AM ET
- Existing Home Sales10:00 AM ET
- Janet Yellen Speaks 10:00 AM ET
- EIA Petroleum Status Report10:30 AM ET
- 7-Yr Note Auction 1:00 PM ET
- Jobless Claims8:30 AM ET
- Chicago Fed National Activity Index8:30 AM ET
- PMI Manufacturing Index Flash9:45 AM ET
- Bloomberg Consumer Comfort Index9:45 AM ET
- New Home Sales10:00 AM ET
- Leading Indicators10:00 AM ET
- EIA Natural Gas Report10:30 AM ET
- 30-Yr TIPS Auction 1:00 PM ET
- Fed Balance Sheet4:30 PM ET
- Money Supply4:30 PM ET
- Robert Kaplan Speaks 6:30 PM ET
Sources: Econoday, Bloomberg, Twitter, WSJ, Financial Times, Advisor Perspectives, FRBG, FRBSL
Post author: Charles Couch