The close of business today marks the end of the first quarter of 2016. The stock market indices that were down as much as 10% a few months ago are now back in the black by about 1%. It’s quarters like this when investors look to the comfort of history, which shows that over the last 100 years, stocks have produces an annualized 10.3% return on investment.
Chicago Fed President Charles Evans will be speaking later this morning, just a day ahead of the monthly Jobs Report. Mr. Evans has supported Fed Chair Janet Yellen’s accommodative position, saying that the current low level of inflation makes raising interest rates a challenge. Even if the Bureau of Labor Statistics surprises us with a number way north of the 200K expected newly created jobs tomorrow, I think that 30 year rates in the 3’s are here (dare I say it) through the election.
Yesterday was a great day for Bonds and Stocks. Janet Yellen gave a speech in New York (you remember the disco ball in the unaltered photo) and shared her concerns about raising rates. She was more dovish yesterday than she was in the last FOMC speech. The bottom line to her remarks is that she does not see that this current economy can withstand much–if any–upward pressure in rates. No comments from other Fed officials have been hears since then. The probability of a rate hike in April is 0% and June is 28%
Janet Yellen will address the Economic Club of New York in just over an hour. Clubbers are expecting to hear more accommodative rhetoric coming from this disco diva. The Atlanta and San Francisco Fed Presidents are also on speaking tours, addressing the 0.1% Personal Spending and PCE growth, 0.2% rise in Personal Income, and how that compares with the continued 5.7% expansion of home prices across the country. S.F. Fed Pres. John Williams (also in the music scene as an accomplished film score composer of course) in particular is calling for gradual interest rate increases.
Spring is in the air and the financial markets are closed today for Good Friday. The only news out this morning is the final Gross Domestic Product reading from the 4th quarter of 2015 coming in at 1.4%, and bringing the final GDP for the 2015 calendar year to an expansion of 2.4%
Durable Goods Orders drop 2.8% this month, which is what glass-half-full analysts were expecting. A durable good is something we buy that is expected to last more than a year. That number could be down because 265,000 Americans filed for their first unemployment check last week, which is a 2.2% increase over last week. If you don’t have a job, you are less likely to you out and buy a new TV–which is ironic because you have a lot of free time to enjoy that TV now.
In honor of Good Friday and Easter, the bond market will close at noon today and be closed all day tomorrow. Usually we see prices drop before a long weekend so traders can close positions and cut out early. And then they go to the Hamptons and watch TV.
Around the country, New Home Sales are up 2% from this time last year. Several Fed board members have been speaking out today about the dangers of inflation, noting that additional indicators also show a 2.0% rise and calling for three rate hikes this year. And still other board members are saying that the global economic climate is subdued and we shouldn’t expect more than two rate hikes. It’s like last night’s caucus all over again: let’s take 10 minutes to vote on whether the candidates for delegate should be allowed 30 seconds to speak or keep in to the mathematically-derived 20 seconds. It would have been amusing if it weren’t so aggravating.
It is difficult to write about financial matters when terrorists are killing people. Even the markets are flat today as they attempt to find meaning in today’s bombing in Brussels.
In her address to the nation on Wednesday, Janet Yellen said that the U.S. economy has been resilient in the face of “shocks”, and that despite global economic “developments” in recent months, the domestic economic activity has been expanding at a moderate pace. This has been eased, in part, by stimulus packages put together by Asian and European sovereigns. In other words, We don’t need to do much because other countries have already taken care of it.
In housing news, Fannie Mae says “A less optimistic outlook for future wage gains, especially among small business employees, coupled with continued strong home price appreciation boosted by lean inventory, is adding to the housing affordability challenge”. In other words, home prices are increasing faster than your paycheck. Thankfully, interest rates are still low.
The continuation of accommodative policy from the Fed and generally dovish tone in Ms. Yellen’s prepared statement yesterday inspired a rally in the mortgage market which ratcheted prices up a notch and is keeping rates stable this morning. Even the news out of Philadelphia that the manufacturing sector is posting positive numbers for the first time since last June is not reversing yesterday’s gains. And now that I read what I just wrote and realize how depressing it sounds, I am not surprised.
Happy St. Patrick’s Day!
Today wraps up the second of eight FOMC meetings happening in 2016. I don’t know that anyone is anticipating a rate hike out of the Fed during their press conference at noon our time. Life is full of surprises though. Take the Consumer Price Index for example; this morning’s year-over-year CPI reading showed an increase of 2.3%. That is the highest YOY increase in the last eight years, even though the index decreased 0.2% from last month…I don’t understand the math there either. Surprise!
Interest rates continue to trend upward.