June Fed Rate Hike More Likely

Seal of US Federal Reserve Board of Governors.

Positive economic data increases the likelihood of a June Fed rate hike. Markets wonder if rising rates will hurt as much as falling rates have helped.

If you looked at last week from the perspective of the children’s book, If You Give a Mouse a Cookie, it might have gone like this:

If you give the United States a positive employment report, investors are going to ask whether interest rates will move higher. When they conclude the Federal Reserve may increase rates sooner rather than later, American stock markets may dip lower…

Yes, last week was one of those weeks: When good news triggered not-so-good news. According to Barron’s:

“The February jobs report, showing a 295,000 gain in nonfarm payrolls, about 60,000 more than predicted by economists, plus a dip in the unemployment rate to 5.5 percent from 5.7 percent in January, evidently was enough to convince the markets that a June Fed rate hike is now likely. The June fed-funds futures contract was pricing in a 70 percent probability of a move to 0.25 percent to 0.5 percent at Friday’s settlement, up from 48 percent the day before, according to the CME.”

Reuters reported the good news: A stronger U.S. economy is better for U.S. stock markets over the long term. It also gave the not-so-good news: Investors’ worries the Fed could choke economic growth by raising rates too soon led to a market selloff.

As investors agitate, it may prove worthwhile to spend some time thinking about economic indicators. The Conference Board produces leading, coincident, and lagging economic indices which are comprised of individual leading, coincident, or lagging indicators. These indices are intended to provide insight to U.S. economic change and help identify turning points in economic data. For example:

• The leading index is an early indicator. It is intended to mark turning points before economic change occurs.
• The coincident index tends to mirror current economic performance, turning up or down along with GDP (gross domestic product) growth. One component of the coincident index is the number of employees on nonfarm payrolls.
• The lagging index tends to reflect what has already happened.

In its most recent report, The Conference Board Leading Economic Index increased which suggests a positive short-term outlook for 2015. However, the pace of increase slowed month-to-month which indicates downside risks remain.

S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.  You cannot invest directly in this index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* June Fed Rate Hike.

Sources:

http://en.wikipedia.org/wiki/If_You_Give_a_Mouse_a_Cookie

http://online.barrons.com/news/articles/SB51367578116875004693704580494063947889780 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-09-15_Barrons-Odds_Go_Up_for_Rising_Rates-Footnote_2.pdf)

http://www.reuters.com/article/2015/03/07/us-markets-stocks-usa-weekahead-idUSKBN0M22DK20150307

https://www.conference-board.org/data/bci/index.cfm?id=2160

https://www.conference-board.org/pdf_free/press/PressPDF_5393_1424340004.pdf

The post June Fed Rate Hike More Likely appeared first on Happiness Dividend Blog – Personal Finance, Education and Investment Guidance.