Recent Bond Market Impact
James Carville said back in the 1990’s that if he died he wanted to come back as the bond market because it’s more powerful than the president. Whether that is true or not we aren’t sure, but what we have witnessed is the power of the bond market this last week. With statements from The Federal Reserve Chairman we saw interest rates move up for the first time in several months, which was the highest in 7 years. The 10-year treasury moved up only 17 basis points, which seems small but caused equity markets to drop as much as 4%. If interest rates continue to be volatile, we will continue to see volatility in the stock markets. The bond market roared, and the equity market seemed to cower.
Recently we’ve been talking about the reports coming out on employment numbers. In September the Labor Department reported that 23,000 jobs have been added to construction hiring, and it is now at a point where there are 315,000 more jobs held than last year at this time. We have reportedly been on a construction hiring spree in the last 5 years and this is the 2nd highest in history. In addition, 273,000 construction jobs are still open, and the market is still flooding in with workers coming into the workforce.
Recent History of Unemployment Rates
We’ve had some questions about how long we can sustain the current lows in unemployment. We’ve had four times since 1950 when the unemployment rate has been at the point it is now or lower. Those times were after the Korean War, during the Vietnam War, right before the Tech Bubble in 2000, and now. The low in the Vietnam War did not last long because of 6-8% inflation at the time. The Tech Bubble was a short time and took out a lot of sector hiring in tech right before 2000. Looking at the data, it shows that the Tech Bubble and the Vietnam War were “one offs,” so to speak. After the Korean War we had a sustained expansion, so today’s market is looking more like that one, not like the other two. The Fed predicts that we can drive the unemployment rate down even more in 2019 and sustain it into 2021 because we don’t have a lot of negative factors, primarily inflation. These low rates in unemployment could be with us for quite a while.
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