#165 Financial Markets Are At A Crossroads And Pivotal Point

Financial markets are at a crossroads and pivotal point

At the first of the year we threw out the possibility that this could be the year of women. Today Janet Yellen will be talking about possible interest rate increases. Tomorrow Hilary Clinton will compete with Bernie Sanders to win the state of California. On June 23rd Angela Merkle, who has played a key roll in keeping the European Union together, will be in the spotlight, as Great Britain votes on whether or not to stay in the EU. These women are have the potential to impact the global economy leading our financial markets to a crossroads or pivotal point.

The jobs report may influence interest rates

Last week was all about the disappointing jobs report. 38,000 jobs were created when expectations were over 160,000. Most of these jobs created were part-time and it’s the second consecutive month that we have had a full-time job loss. This is the worst job growth we’ve had since 2010.

This will probably change what Janet Yellen will talk about today in her press conference. Our consensus is the Fed will now have a hard time raising interest rates in two weeks. The only reason we can see the Fed raising rates is so that if the economy slows down in the next few months, they will have room to pull rates back down.

Where is the money going?

Since 2009 we’ve had just above 0% interest rates. Normally this causes corporations to invest more because it’s cheeper. They will buy back stock, pay dividends, or purchase equipment to boost productivity. These actions have the potential to boost the financial markets in different ways. Recent research from the Carlisle Group shows that companies are buying back stock and paying dividends but they are not purchasing equipment to expand their business. The money is not going to the area that produces longterm economic growth and positive impact on the financial markets. What we are seeing right now is short-term, one time growth. This is why we have seen three straight quarters of negative earnings in S&P 500 companies and low employment numbers.

Short-term growth won’t last

This short-term growth trick created by corporations also explains why we are staying conservative in our clients’ portfolios. If we are not seeing earnings go up, you’re not going to see the financial markets go up. Companies can only buy back their stock for so long to make the price go up. Eventually, we believe it has to come back down. The mainstream media is focused on the market increases but we believe that at some point it’s going to stop. We want to be prepared for that.

If you would like to talk about your personal portfolio or other questions, please feel free to call or email any of us. We would be delighted to talk with you.
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Greg Powell, CIMA
Wealth Consultant
Email Greg Powell here

Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley Page here

Bobby Norman, CFP®, AIF®

Vice President
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Vice President
Wealth Consultant
Email Trey Booth here

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