Stocks sold off as interest rates soared to highest since 2011. The 10-year treasury rose 0.15% to 3.227%, the highest since 2011. There were multiple factors attributable to the rate increase.
- The FED started decreasing the size of its balance sheet a year ago by $10BN a month and increasing it $10BN a month each quarter. So the FED is now decreasing balance sheet by $50BN a month and has stated no intent on increasing it further. Keep in mind when the Fed hit its maximum of quantitative easing it was purchasing over $90BN per month.
- The dollar rose based on FED chair Powell’s comment that the nation’s economy is seeing “a remarkably positive set of economic circumstances.”
- Falling unemployment and continued belief in U.S. economic growth.
The rise in interest rates caused some investors to sell stocks and buy treasury bonds. While this can be seen as a negative, I believe the increase is healthy. If the FED continued to raise short term rates and long term rates stayed the same, then the yield curve could invert. In other words short term rates could be higher than long term rates. This has always been a bad sign for the economy. An increasing yield curve is usually a good sign for the economy even if stocks initially falter based on higher interest rates.
Commodities were generally higher for the week, including oil despite a drop in inventories after declining for weeks.
In the numbers this week:
- The Institute for Supply Management reported:
- Its manufacturing index fell to 59.8 in September from a 14-year high in August of 61.3. Keep in mind that anything over 50 indicates acceleration, just at a slower pace.
- Its non-manufacturing index rose to from 58.5 in August to 61.6 in September, the fastest acceleration in 20 years.
- The Caixin China manufacturing purchasing managers index fell from 51.0 in August to 50.0 in September. 50.0 represents no change (growth or contraction) in September, largely due to tariffs.
- Canada reported
- It added 63,000 jobs in September.
- Year over year wage increases of 2.4%.
- A trade surplus in August for the first time in two years.
- The Commerce Department reported the U.S. trade deficit grew 6.4% in August. Imports increased and exports decreased.
- The Labor department reported
- First time claims for unemployment fell 8,000 at a seasonally adjusted 207,000. The four-week moving average of claims rose 500 to a seasonally adjusted 207,000. The decrease was attributed to rebound from the effects of hurricane Florence.
- For the month of September the U.S. added 134,000 jobs, falling short of forecasts of 180,000 and down from the previous months. Still the unemployment rate fell to 3.7%, the lowest since 1969. Average hourly earnings rose 2.8% in September from a year earlier, down from 2.9% in August. Job gains were the biggest in manufacturing, health care and construction. The weakest areas were retail and hospitality (hotels) which may have been hurt due hurricane Florence.
- August’s jobs number was revised up to a robust 270,000 and July was revised up to 165,000 for a total increase of 87,000 from previously reported numbers.
- The Energy Information Administration weekly report is here wpsrsummary. Also, the EIA reported
- U.S. Crude oil production rose to 11.1MM barrels per day from 11.0MM barrels per day.
- Storage of natural gas rose 98BN cubic feet. Natural gas storage is below the minimum for this date during the past five years.
- According to Baker Hughes, In the past week the number of active oil rigs fell 2 to 861 and natural gas rigs was unchanged.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.