Jackson Hole, Wyoming
The Federal Reserve has its annual policy symposium coming up, which is a raucous good time out in Jackson Hole, Wyoming. This Symposium is taking on more of an important role because there are theories out there that the Fed may announce a rate cut, unofficially, at this meeting or at least give a good guideline about their policy. The market, in these past weeks, has been rocky. There’s been a lot of fear on trade policies and the Fed typically acts as a safety valve in these times where they can cut rates. This week the Feds topics of conversation, their focus, and what they are talking about is really what the markets are watching. It’ll be interesting to see how important this symposium ends up being since it’s not really an official Fed meeting, but it seems like everybody’s on pins and needles about it. The Fed’s policy and interest rates have a wide-ranging impact on the market so we will keep an eye on what happens and how it impacts markets.
Interest rates are impacting housing right now. For example, we saw housing starts fall for the third straight month by 4%. The culprit was a result of a decrease in multi-family housing. On the surface, it looks negative but there’s some underlying good news inside of it such as an increase in single-family housing. That number went up 1.3% which makes majority of that reported number. Housing permits went up to a seven-month high and was the largest gain since June 2017. For the month of July it was up 8.4% month-over-month. So, while we’re looking at the surface and it appears to be a big drag in the market, if you pull back the curtain, we’re seeing consumer confidence starting to drive some of this data up in certain areas like housing. The individual house purchases for single-family homes are more interest rate-driven because people must go out and get a mortgage and loans. The multi-family units are also great because it offers people’s homes where they can rent at a lower cost when interest rates are too high. You typically see a lot more multi-family housing because individuals can’t afford an individual home. While it looks bad on the surface when we saw that total drop, the strength in single-family housing is a good indication that maybe these lower interest rates are helping the individual consumer. Anything that would cause housing to gain traction back would really help the market and the economy. When houses are being built or purchased it helps offices that are doing the closings such as accountants and lawyers and helps a lot of service sector type of employment plus much more. We saw a gain in the West as well as the Midwest and Northeast. The drag was really from the South and mainly because of Tropical Storm Barry so we are hoping to see that pick up soon.
Strength of the Dollar
Housing numbers show the positive impact of us lowering rates, but globally, U.S. interest rates are considered high. The strength of the U.S. dollar is at a two-year high. It’s up 11% since early 2018. With the international trade talk going on and causing a bit of a drag, part of it is because we’re having some conflict with our exports becoming more expensive. For example, if we’re selling into Germany with a product made here in the U.S., mainly a high capital good, it gets more expensive to sell with the increase in the dollar value. That can put a drag on earnings and margin for those companies that have a high international sales component. A lot of times if you have companies with more high-level domestic sales, they get insulated to only doing domestic trade due to the drag of international sales during times like these. Having a strong dollar is a double-edged sword because our dollar is strong even though the rest of the world is somewhat down and it makes us look great by comparison. It’s all cash flow and ultimately, our dollar gets stronger as it continues to come our way.
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