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18Jun

INTEREST RATES AND BOND YIELDS; BOTH IMPACTING MARKETS AND THE ECONOMY

Investors are watching two bellwethers that can impact both the stock market and signal the direction of the economy. The rising yields on government bonds can become an inviting factor for those who want to reduce the risk profile of their portfolios. Also the confluence of yields on short and long duration government bonds can be a sign of a downward turn in the economy. Likewise, any increases in interest rates by the Federal Reserve can impact the stock market and cause a drag on economic growth. Both have been in flux or have waded into territory that has prompted more attention. After acclimating to a culture where the federal funds rate was near zero for a long stretch of time, those who benefit by low interest rates have flourished. Since the financial crisis ended, home sales have rebounded and home prices have been back on an upward trajectory. Sales

21May

TAKING A HIKE; A NEW FED CHAIRMAN STEPS IN

After several years of keeping the federal funds rate near zero, the drama around meetings of the Federal Reserve’s Federal Open Market Committee (FOMC) has increased and garnered more attention. With hints of impending inflation, and unemployment numbers looking much better, the stage has been set for more intervention by the central bank. The variables that the Fed watches, and often acts on, have seen changes, and with economic improvement, often comes an economy that might be improving too fast. The Fed uses several “tools” to help keep the economy healthy and raising the benchmark rate is just one of them. On March 21, 2018, after their FOMC meeting, the Fed announced a quarter point rate increase. The news immediately affected the markets, causing some intra-day volatility. The news out of the meeting was mostly positive though, with an expectation of some manageable inflation and affirmation of a growing economy.

26Mar

RISING INTEREST RATES; IMPACT ON BONDS

After lots of speculation the last couple of years, interest rates have begun a slow climb out of the cellar, thanks to a more robust economy. It is a double-edged sword in many ways, with borrowing costs going up as economic stimulus simultaneously accelerates. The Federal Reserve, under its new chairman Jerome Powell, has its eye keenly focused on the low unemployment rate and the threat of encroaching inflation. After near zero interest rates for years, these factors are forcing their hand. Chairman Powell’s recent remarks before the House Financial Services Committee were encouraging in terms of the economy and its direction, but that is where that double-edged sword can be found. This good news means that the Fed can see the prospect of increasing inflation and their answer is to raise interest rates. An overheated economy, means that the pace of rate increases has to increase, and that increases

26Feb

BOND YIELDS SHOOT HIGHER ON INFLATION FEARS

A recent dip in the stock market the end of January was an unexpectant surprise in a rally that has been prolonged and without many hiccups. The Wall Street talking heads blamed the pull-back on bond yields as the culprit. The 10-year Treasury yield, went above 2.7 percent for the first time in three years. That might have come out of nowhere for many investors who had not had reason to think about any alternatives to equites in a long time; a sector which had been rewarding them consistently. On February 1, 2018, the benchmark 10-year Treasury yield hit 2.783 percent, an increase of seven basis points and 2.85 percent on February 2. That brought it to the highest yield since April of 2014. The 30-year bond passed three percent for the first time since May of 2016. Both the equities market and the bond market can be impacted by

12Feb

WAS JANUARY A HARBINGER FOR THE STOCK MARKET OF 2018?

In past years, there have been times when the stock market has mimicked a roller coaster ride with regular rises and dips. Most investors don’t like that kind of ride though, with the exception of day traders, who invite volatility. Over the past eight years, the roller coaster has been mainly steaming up a tall incline in the ride without too many dips along the way. Twenty-seventeen saw record increases in stocks with five separate 1,000-point milestones during the year. January 2018 was the best January in 21 years for the market. There was only some volatility seen at the end of the month. The month saw the S&P rise by 5.62 percent. One trend, that is based on historic evidence, is known as the “January Barometer.” From 1950 to 2017, a good January has been a predictor for the market 87 percent of the time. Since 1980, the January

29Jan

THE TAX CUTS AND JOBS ACT OF 2017

The legislative triumph of the end of 2017 was the passage of a tax reform bill, known as the Tax Cuts and Jobs Act, that will reduce the tax burden on millions of Americans. The legislation was a campaign promise of the president and is part of an economic stimulus agenda that includes repatronizing billions of dollars of the funds of international corporations held overseas, renegotiating trade deals and bringing more jobs back to America. The thinking is simple; the middle class makes up the largest consumer and taxpayer segment of the American economy. Putting more dollars in the wallets and purses of those American’s can stimulate spending and economic growth. Reducing regulatory burdens on big business, along with lowering tax rates, can lead to more job creation and higher wages. Some of this had begun to happen at the end of 2017 with many companies dolling out year-end bonuses.

15Jan

LARGE CAP STOCKS OUTPERFORMING SMALL CAPS; WHY?

Big companies, big products, big sales should be the maxim for 2017. Companies like Apple, Amazon, Google (Alphabet) and Facebook have seen profits soar and double-digit gains in their stock prices as their market values have become gargantuan. Amazon’s CEO, Jeff Bezos, has become the richest man in the world this year as a result. In 2016, from November 8 to year end, the S&P 500 grew by 5.0 percent while the Russell 2000 returned 13.9 percent. In October of this year, the S&P was up 2 percent while the Russell 2000 had lost a percent. Year to date, through November 10, the Russell 2000 is up less than nine percent this year. Contrast that with the S&P 500, which through mid-November, has grown by more than 15 percent. From November 4, 2016, through November 26, 2017, the S&P has not fallen 3 percent in any day. The CBOE Volatility Index (VIX),

8Jan

NEW HOME SALES HIT 10-YEAR HIGH

It’s the American dream; to own a home, and maybe some property and make it your own. The past decade and a half has borne witness to a rollercoaster ride in the values of homes in many parts of the country. New home sales sank to a 6-year low by February of 2007, falling to an annualized pace of 848,000 units. That was down four percent from January of that year. That number also represented an 18.3 percent drop from the year earlier figure. Problems had also showed up in the sub-prime mortgage sector that month with tightening credit. These figures helped to push the broad stock market indexes lower. Ironically, it had been new home sales in 2004 and 2005 that had helped contribute to a more robust economy those years. This year has been a real departure from 2007. September saw an annually-adjusted rate of 645,000 units in

20Nov

WHO MIGHT BE THE NEXT CHAIR OF THE FEDERAL RESERVE?

Not many Americans pay close attention to the changing of leadership at the Federal Reserve. It is one of those things that makes it hard to draw a straight line between a new appointment and any thoughts about “how does this affect me?” On the other hand, it is something that is closely watched by economists, financial analysts, investors and the financial press. The philosophies of the Fed Chair can impact the direction of the American economy, interest rates and the prevention or recovery from a financial crisis. In short, the person who chairs the Federal Reserve plays an important role in decision making that affects everybody. The current Chair of the Fed is Janet Yellen, a veteran of the system, who has been the Chair of the central bank’s Board of Governors since February of 2014. Yellen also serves as the Chair of the Federal Open Market Committee. She

6Nov

FEDERAL RESERVE; INTEREST RATES AND BALANCE SHEET CHANGES

The Federal Reserve, the U.S.’s central bank, has had two primary areas of discussion at its most recent meetings. It had to survey America’s economic landscape and determine what to do with interest rates and it needed to address its balance sheet after six years of dealing with the last financial crisis. Inflation is something that the Federal Reserve’s Federal Open Market Committee (FOMC) — which is the monetary policymaking body within the Fed — monitors closely. It is a major determinant in what decisions the Fed makes about interest rate changes. The FOMC also looks at the state of unemployment, which also factors into decisions about interest rates. They even review regional economic conditions. At its most recent meeting, in September 2017, the Fed decided to leave rates unchanged. The Fed’s benchmark federal funds rate will remain between 1 percent and 1.25 percent. At a press conference, after the