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Market Update - August 5, 2014

Last Friday, the Bureau of Labor Statistics reported that nonfarm payrolls grew by 209,000 in July, the sixth-consecutive increase north of 200,000. That hasn’t happened since 1997 (BLS).

 

Included in the release is what’s called average hourly earnings; it was unchanged in July and is up a muted 2.0% versus one year ago.

 

 

As Figure 1 indicates, wage growth has been weak, and the rate is showing no signs of accelerating. If that’s the case, we still have plenty of slack in the labor force, and the Fed can be patient with its low-rate policy.

 

On the other hand, a more comprehensive gauge of labor costs released last Thursday may be suggesting otherwise. The Employment Cost Index, which takes into account benefits, jumped 0.7% in Q2, its biggest one-quarter rise since 2008 – see Figure 2.

 

 

Now it’s possible that Q2’s more robust increase is simply payback from Q1’s anemic 0.3% rise, but worries about increases in employee compensation leads us to the weakness in stocks last week.

Market Update - July 31, 2014

The markets are facing some serious headwinds today as the Chicago PMI number came in lower than the consensus estimate, and Argentina has again defaulted on some of its debt.

The Chicago PMI number is one of many indicators and can occasionally be a volatile report that does not always reflect national sentiment.   The U.S. Services PMI which is produced by Markit and is a much broader measure, releases July results on August 5th and is forecasting a more positive outlook . Coupled with the positive GDP number from yesterday, it may not be as “doom & gloom” as the naysayers predict on television.

Global markets showed some weakness mostly due to Argentina and the worry that harsher U.S & European sanctions may hit Russia.

It is natural that certain geo-political events or updated financial reports may cause the markets to take a breather from time to time. Factors such as these reiterate the importance of having a well-diversified portfolio that reflects growth over time.

Market Update - July 30, 2014

The Fed has just announced that they are easing their bond buyback program by $10 billion to $25 billion per month, sighting an improved labor market and decline in unemployment. The markets have reacted to the news with slight improvement. We are seeing some overall lower numbers on the DJIA & the S&P; while the NASDAQ is showing some strength, partially due to Twitter’s better-than-expected earnings. The irony of the market’s weakness today is that the Q2 GDP numbers were revealed to be stronger than expected… which one would think may push the markets higher. However, coupled with the GDP numbers comes the looming fear that the stabilizing & improving economy may in turn cause the Fed to speed up the raising of the Federal Funds Rate.

GDP surged 4% in the second quarter after a less-than-stellar first quarter, which was hindered by the harsh winter conditions. Employment growth, as well as strong indicators from the factory and services sectors, has helped increase overall confidence. Consumer spending, which plays a huge role in measurable economic activity, has also been moving forward at a pace of 2.5%

In local economic activity, on any given day on any given street, one can see home & roof repair being done as home owners finalize repairs from the hail storm in May. It is always important to get a minimum of 3 estimates for any major repair job, and do your homework before hiring any contractors. Recommendations from friends or neighbors are always a good place to start, in order ensure the most reliable and fully licensed contractor is entrusted to the task.

Market Update - July 28, 2014

This afternoon, we are seeing the markets swing back with positive momentum. This morning started off a bit shaky as stocks continued to decline, but the markets are now showing some signs of life, trying to break their 3 day skid.

Earnings season continues this week, as we will see 2nd quarter results from an estimated 300 companies.

There will be some important economic reports released this week including the 2nd quarter GDP report on Wednesday, as well as the July employment numbers on Friday.

Market Update - July 22, 2014

Stocks are climbing this morning after showing some losses yesterday. Currently, all three major indexes are showing gains. Earnings reports are playing a big part in today’s advances, with companies in general continuing to show strength.

 

The consumer price index rose .3 percent last month, and there was also positive news from the National Association of Realtors. Existing home sales rose 2.6 percent in June, which was better than expected.

 

Last week, Fed Chief Janet Yellen also appeared before two congressional committees to discuss monetary policy.

 

Yellen repeated many of the recent themes, including her lack of concern over the recent uptick in prices and her belief that interest rates should stay low for a considerable period of time (prepared testimony Federal Reserve website). It’s one way the Fed is trying to boost the economy and create jobs.

 

Discussing the possibility of a sooner-rather-than-later rate hike, she said that if we get faster than forecasted improvement in the labor market, “Increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned (prepared testimony Federal Reserve website)."

 

The Fed has already said the future path of interest rates is highly dependent on the economic outlook, and central bankers are likely eyeing the recent improvement in employment growth (BLS data).

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