Watching earnings and jobs
Last week the Fed came out with a slightly changed message in a press release that they will be a little more hawkish. They removed any language about international risk and stated they will be honed in on US job growth. The best way to stay ahead of the job growth numbers is by watching the earnings reports. If companies are making money, they are creating and keeping jobs.
Watching earnings reports
We are over the half way mark for earnings reports. Earnings are still going to come in low with an expected -1.07% growth rate. This creates an easy bar for earnings reports to jump over so some companies are reporting better than expected. When that happens, we look deeper at their job numbers to see if there is any real growth.
The Fed likes to pretend they are going to raise rates
It looks like the Fed is trying to tell the market that they will be raising interest rates, though we still believe it won’t happen before the end of the year. The Fed likes to pretend like they are going to raise rates, see how the market reacts, and then make a decision. They markets have not reacted yet to any of the Fed’s indications so far.
Rise in corporate bond purchasing
Right now we are looking at a record in corporate bond purchasing. The company Deal Logic tracks bond transactions and they reported 103 billion corporate bond purchases in October. Interestingly the rise in corporate bond purchasing is across all industries and sectors. If this continues, it will be the fourth year in a row to set a record.
Why are investors buying corporate bonds?
So why are investors buying corporate bonds when they know interest rates could go up at anytime? That’s an interesting part of the debate. It could be that investors are buying corporate bonds because they really don’t believe interest rates are going up anytime soon. We are watching this closely because that determines how we allocate our portfolios.
In October consumer spending was up 3.2% which is two thirds of the economy. We will most likely see consumers keep spending throughout the holiday season. There was however, a lot of bad news from October. The biggest news was that GDP numbers came in low at 1.5%, which has to make the Fed take notice. If the Jobs Report comes out low this Friday, we believe this will encourage the Fed not to raise interest rates. Manufacturing and exports were also at a record low since 2009 and new home sales also started to drop. We saw consumer confidence decline in October along with durable goods orders. Also, China’s GDP was down confirming their slowdown effecting global markets. There is a lot going on behind what has caused all these issues and we are hard at work discovering these factors.
On a special note, we will be holding an Investor’s Insights conference call to share with you all the data that we have alluded to today and how we are making moves in and developing strategies in our clients’ portfolios.
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Trey Booth, CFA®
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Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Government bonds are Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Economic forecasts set forth in this presentation may not develop as predicted.
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