Investors are fed up with the Fed causing market uncertainty
Investors are fed up with the Fed because of it’s word games that are causing market uncertainty. Friday, Janet Yellen said the Fed was still data dependent but a gradual interest rate hike would be appropriate. The market responded by going up 128 points on the DOW. An hour later, Fed governor, Stanley Fishers, stated that two interest rate hikes are appropriate at this time and the market swung down 200 points on the DOW. This is frustrating for investors because this rhetoric has created so much uncertainty in the markets.
Is the Fed truly data dependent?
In her statement on Friday, Janet Yellen said the Fed was data dependent. Yet, an hour before she spoke GDP was revised down for the second quarter to 1.1%. This is not a good number as GDP needs to be at 3% to indicate a strong economy. If the Fed was truly data dependent, they would see that and decide to wait a little bit longer before raising interest rates.
Has the stock market really reached a new high?
Investors have been hearing that the stock market has reached a new high for some time. What we all need to understand is that this may be because of a few stocks within the DOW Jones Industrial Average and S&P 500. The overall market concerning corporate earnings continues to go down. The uncertainty caused by the Fed shows a weak economy. This is what we are watching.
The Fed is playing a word game
The Federal Reserve can never come out and say, “This is exactly what we are thinking.” We believe the Fed might be using words to keep the market from getting over valued and to help prevent it from going back down. This word game is hurting the market.
If the Fed is truly data dependent, there is a lot of data coming out this week. We will see the data concerning personal income, consumer confidence, various housing numbers, the manufacturing index, and the jobs numbers. By the end of this week, we will know if the Fed is really looking and depending on this data.
Investors need to remember that this is a presidential election year and the Fed, historically, does not raise interest rates in such a time. One has to ask whether or not the Fed will wait to raise rates in December after the election. This would let President Obama leave office with his legacy and the new president to come into office being able to say that it happened before they arrived. That causes volatility in the markets. These are the questions and issues we are watching so that we can help navigate our clients through these times with the goal of protecting them on the downside. While there are no guarantees, we are working tirelessly to do so.
The bull or bear market debate
We are focused not just on a possible interest rate hike but also on corporate earnings. We are not seeing corporate earnings go up. The debate is whether we are in a bull market that is just taking a pause or are we in a bear market that is getting ready to start. These are the debates that not only we are having, but the markets and investment industry are having as well.
We will continue to keep you informed. Contact us if you have any questions or concerns.
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Greg Powell, CIMA
Email Greg Powell here
Bobby Norman, CFP®, AIF®
Senior Vice President
Email Bobby Norman here
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.
Economic forecasts set forth in this presentation may not develop as predicted.
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Stock investing involves risk including potential loss of principal.
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