September 2, 2016

Both stock and bond markets have been in a period of extremely low volatility for nearly two months now. The 10-year treasury rate has been trading in a narrow range of 1.48%-1.62%, and the S&P 500 hasn’t moved outside of its 2150-2190 range in that same period of time. Markets remain quiet, waiting on a few key pieces of information in the next couple of months.

The first piece of information was this morning’s employment report. The expectation was for 180k in new job growth for the month of August; however the actual number came in at 151k. This is immediately following a July report that was much better than expected, showing 275k in new job growth, relative to an expectation of 180k for that month as well.

In Yellen’s recent speech, she emphasized that there has been a strengthening case for raising overnight rates again sometime soon. Prior to the employment report this morning, the market viewed the odds of a September rate increase at 40%, and December at 60%. However, with the below average report this morning, the markets are shifting their focus more towards December now.

Obviously the second key piece of information that we will be waiting for is the September FOMC meeting rate decision. The possibility of a rate increase in September is still there, although it is smaller now after today’s employment report. We will have the decision from that meeting on September 21st. For now, we just continue to wait.

Eric Swanson, CFA