Just since the end of the third quarter, we have already seen the S&P 500 index rebound over 5% in the first week and a half of this month. That means equities are only down roughly -2.25% on the year, compared with -9.00% at their lows in August.
The big news recently was the decision by the fed not to raise rates in September. Even though the December meeting was still seen as the most likely time frame, the release of September’s meeting minutes contained negative language regarding global growth that has now led much of the market to think that the middle of 2016 is more likely than December of 2015. In fact, fed funds futures were trading this last week at prices that imply April of 2016 as the most likely time frame for a rate increase.
We also had a pretty big surprise in the October employment report last Friday. The number of new jobs created in September was reportedly 60,000 less than anticipated, and August was also downward by an additional 30,000 jobs. As for upcoming economic data, we have the Consumer Price Index inflation measurement on Thursday of next week and consumer sentiment on Friday. Inflation continues to be low, and this is one of the key reasons that many economists are predicting that the Fed will have to continue to wait to raise rates, as inflation is not yet at the Fed’s target rate of 2.0%.
The 10 year treasury yield bounced up late in the day today, closing at a 2.10% yield. Prices have been strong, pushing yields lower, due to increased concerns of slow global growth. The bottom of the range is still sitting at 1.90% as I have mentioned previously, however the top end of the range has come in slightly. The new top end of the range is at 2.30%, but there is an area of significant congestion around 2.20% that would need to be crossed first before 2.30% can be considered. If stocks continue to rally as they have this past week, we may be looking at a good buying opportunity for bonds if the 10 year treasury also approaches the 2.20% mark.
Eric Swanson, CFA