See the numbers for the week of December 7, 2018
BTN Masthead

No Reason to Run for Cover

The sky is falling! Or, in our case, stock prices and bond yields are falling. But the message is the same – this week’s dramatic action in the financial markets may be another Chicken Little situation. Stock investors continue to have a case of the “glass is half empty” syndrome. The result of the G-20 summit this past weekend left many unanswered questions and more doubts about the trade dispute between the U.S. and China. The doubts conjured up a worst-case scenario that would throw the U.S. economy into a recession. This, in turn, wreaked havoc with bond yields, causing the first interest rate inversion since 2007.

So, for now, don’t be Chicken Little. Instead, search out the facts, and stay clear of computer algorithms that may exaggerate market moves.

The turmoil even caused the fed funds futures market to lower the chance for the Fed to increase the benchmark interest rate in two weeks to 69 percent. The forecast had been close to 100 percent just a couple of months ago. The financial markets are trying their hardest to tell the Federal Reserve to stop raising rates. But the Fed maintains its decisions are data-dependent, and the data portrays a strong economy.

Key Indicators this Week

Jobs – The U.S. added 155,000 jobs in November, about 40,000 less than expected. The two-month revision subtracted 12,000 jobs, bringing the three-month average for job growth to 170,000. Not knocking the socks off anyone, but respectful for an economy that is close to full employment. The unemployment rate remained at 3.7 percent. Wages increased 0.2 percent for the month and remained at 3.1 percent from a year ago. Some standouts among the various sectors include 25,000 new transportation/warehouse jobs, considered the new retail due to internet shopping. When added to the 18,000 new retail jobs, it is easy to see the optimism regarding consumer spending. Bad weather attributed to the minimal 5,000 gain in construction.

ISM – The ISM manufacturing index rebounded in November to 59.3, suggesting the dip in manufacturing activity in October may have been temporary. Four of the five components in the index increased. New orders rose to the highest level since August, production levels and employment rebounded, and inventory levels increased, but remain low. The one decline was prices paid, which had its largest drop since 2012. Despite the tensions over the trade issues, the manufacturing sector appears to be maintaining its foothold in the economy. The ISM service industry index rose to 60.7, a near-record level. Stronger business activity and new orders led the increase.

Beige Book – The report from the 12 regional Federal Reserve districts continues to reflect modest to moderate economic growth across the country. All districts reported growth in non-financial services. Lending volumes grew modestly across most districts, with some areas reporting slower growth. The areas of most concern for businesses are the uncertainty of the trade disputes, difficulty in finding skilled workers and rising interest rates. Dallas and Philadelphia were the only two districts reporting slower growth.

Strategically for Credit Unions:

Curve inversion – that is the talk of the town. But, keep in mind the inversion is between the two- and five-year Treasury notes. The difference between the two- and 10-year notes remains positive, albeit very narrow. Historically thinking, an inverted curve was a precursor to a recession within 12 to 18 months. The inversion may be occurring for different reasons this time, though, especially since interest rates have been down for so long. The best action now would be to build some protection into your portfolio. I mentioned this last week, but it bears repeating – locking in higher yields now gives your portfolio some cushion if rates continue to fall.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.

Follow us on LinkedIn    Forward to a Friend

Copyright © 2018, All rights reserved.

css@catalystcorp.org
800.301.6196
www.catalyststrategic.org