Stocks continued lower last week, with the S&P 500 declining by 0.96 percent to 2,132.98. Despite this loss, the benchmark index is still up 4.36 percent 2016-to-date, and just 2.61 percent below the all-time closing high hit in August. Volatility remained elevated last week, as investors had a handful of domestic and foreign headlines to react to, along with Wednesday’s big release of the minutes from the latest Federal Open Market Committee (FOMC) meeting. As a refresher, the Federal Reserve (Fed) proceeded with a “hawkish hold” in September, where the target range for the federal funds rate was left unchanged but the wording in the official statement hinted at a higher likelihood of hikes down the road.
The newly released minutes from that meeting added to the hawkish sentiment because we learned that the decision not to hike in September was a “close call,” and that several committee members judged that it would be appropriate to raise rates “relatively soon.” Further, the minutes revealed that fewer Fed officials in September (compared to the June FOMC meeting) viewed the balance of risks to growth and inflation as tilted to the downside. All of this has made a rate hike by yearend more likely, and roughly eight in ten (81.4 percent) economists surveyed by the Wall Street Journal now anticipate that the Fed will move in December. However, there are still two nonfarm payroll reports due out between now and the last FOMC meeting of 2016, along with various other economic data releases that could provide the more dovish committee members with an excuse to postpone a hike yet again.
Some retail investors may be concerned about what a rising rates environment could mean for their portfolio but it is important to remember that even if the Fed does hike in December, the pace of subsequent rate increases will likely be very slow since many FOMC members continue to stress that there are “few signs of emerging inflationary pressures,” according to the latest minutes. Moreover, retirement investors with relatively long time horizons should focus less on trying to predict near-term changes in U.S. monetary policy, and more on building wealth through consistent participation in the highly resilient stock market. Such efforts can be enhanced with dollar-cost averaging and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.
To recap a few of the things we learned about the U.S. economy last week, the positives included that headline retail sales growth accelerated, and the number of Americans making first-time claims for unemployment benefits plunged to a 43-year low. As for the negatives, mortgage and refinance applications fell, wholesale and trade-related inflation pressures firmed, consumer sentiment deteriorated, small business owner optimism declined for the second month in a row, and the total number of job openings in America slid to the lowest level since December. This week the pace of economic data remains slow but there are still several important reports on manufacturing, housing, employment, and inflation scheduled to be released. The latter (CPI) should provide Social Security recipients with a clearer picture of what their cost of living adjustment (COLA) will look like in 2017.
What To Watch:
- Empire State Mfg Survey8:30 AM ET
- Industrial Production9:15 AM ET
- Stanley Fischer Speaks 12:00 PM ET
- MBA Mortgage Applications7:00 AM ET
- Housing Starts8:30 AM ET
- John Williams Speaks 8:45 AM ET
- Atlanta Fed Business Inflation Expectations10:00 AM ET
- EIA Petroleum Status Report10:30 AM ET
- Rob Kaplan Speaks 1:30 PM ET
- Beige Book2:00 PM ET
- Jobless Claims8:30 AM ET
- Philadelphia Fed Business Outlook Survey8:30 AM ET
- William Dudley Speaks 8:30 AM ET
- Bloomberg Consumer Comfort Index9:45 AM ET
- Existing Home Sales10:00 AM ET
- EIA Natural Gas Report10:30 AM ET
- 30-Yr TIPS Auction 1:00 PM ET
Sources: Econoday, Bloomberg, WSJ, Twitter, Advisor Perspectives, FRBG, FRBSL
Post author: Charles Couch