Payroll Report Lowers Probability of a Near Term Rate Hike
Market indices finished the week little changed after a weaker than expected report on the labor situation raised concern over the durability of the economic expansion.
June 06, 2016
| By Mike Schwager
Performance for Week Ending 6/3/16:
The Dow Jones Industrial Average (Dow) fell 0.37%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 0.19%, the Standard & Poor’s 500 Index (S&P 500) finished unchanged and the Nasdaq Composite Index (NASDAQ) gained 0.18%. Sector breadth was mixed with 6 of the S&P sector groups finishing higher and 4 finishing lower. The Utility (+2.49%) sector was the best performer while Financials (-1.29%) lagged.
||Closing Price 6/3/2016
||Percentage Change for Week Ending 6/3/2016
||Year-to-Date Percentage Change Through 6/3/2016
*See below for Index Definitions
MARKET OBSERVATIONS: 5/30/16 – 6/3/16
Market indices finished the week little changed after a weaker than expected report on the labor situation raised concern over the durability of the economic expansion. While the report was clearly disappointing it did calm worries that the Fed will hike rates at this month’s FOMC meeting. According to Bloomberg, the probability of a June rate hike fell to 4% from 30% a week earlier.
According to the Labor Department, non-farm payrolls during the month of May rose by just 38K, well short of the 160K expected by economists and the lowest number of jobs added in almost 6 years. In addition, the prior two months’ worth of data were revised lower, now showing the economy added 59K less jobs than originally reported. Average hourly earnings grew by 0.2% during the month and are up 2.5% on a year-over-year basis.
At a speech following the release of the payroll data, Federal Reserve Governor Lael Brainard said the employment report suggests the labor market has slowed. Brainard also warned against raising rates too quickly and that the resiliency of the economic recovery should not be taken for granted. Over the past several weeks, Fed officials have been “telegraphing” that changes to interest rate policy could occur at any of the upcoming meetings. The weak payroll data may have thrown a monkey wrench into that thinking. This coming Monday, Fed Chair Yellen is scheduled to speak and investors will be looking to see how she characterizes the downshift in the labor market as well as for insight on how she views the near term path of policy. Certainly one data report does not make a trend and therefore the Fed will likely want to evaluate at least a couple more months of employment reports before taking any action. This would suggest that the soonest the Fed would move would be at the September meeting – stay tuned.
Beige Book: The Federal Reserve released its Beige Book report last week. The report—which provides an anecdotal summary of economic conditions compiled by the 12 regional Reserve Banks—seemed to conflict a bit with the negative tone of the monthly employment data. The report showed the U.S. economy expanded at a modest pace across most parts of the country. It also noted that employment expanded, wages grew modestly, and pricing pressure was up slightly in most districts. In other words, tighter employment appears to be leading to rising wages and prices are beginning to follow suit. This progression seems to suggest that the Fed is making progress toward its mandate.
The Week Ahead: The focal point in the coming week will be a speech on Monday by Fed Chair Yellen who will address the World Affairs Council in Philadelphia. Investors will look for Yellen’s thoughts on the employment report and how it may impact the forward rate path. As is typical during the week following the payroll report, the data calendar is relatively light. Reports of note include non-farm productivity, unit labor costs, wholesale inventories, and the University of Michigan sentiment report. Earnings season will remain on the backburner with just 3 members of the S&P 500 scheduled to report results.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.
The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.
The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.
March 07, 2019
Late-Cycle Drama Is Unfolding
Risk assets will likely enjoy another rally while the Fed stays on hold, but the pause will only allow excesses to become more pronounced.
January 24, 2019
Amber Lights Flash at Davos
Should the mood this year at Davos prove once again to be a contra-indicator, this may be the signal that the economy is likely to re-accelerate soon and that the party in risk assets continues.
Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”
In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
*Assets under management is as of 12.31.2018 and includes leverage of $12.4bn. Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.
Guggenheim Investments. All rights reserved.
Research our firm with FINRA Broker Check.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.