Jeff’s Weekly Stock Market Commentary: The Fed Conundrum – Will They Or Won’t They?
The Fed announced in late October that there is a live possibility that they will raise rates in December. The very announcement of that initially caused bonds yields to spike (going from 1.98% on October 14th to 2.34% on Nov 10th) and caused losses for those that are heavily invested in USTs.
Traditionally, the Fed lowers interest rates to spur the economy and raises rates to slow it down. There was one jobs report in October that was very positive (and that seemed to spur the Fed on), but virtually all of the significant data released since then has shown economic weakness both here in the U.S. and abroad.
For instance, the UK recently announced that it is emerging from its troubles and stimulus is no longer needed. Then the UK Construction PMI was released showing a dramatic slowdown: dropped from 58.8 to 55.3. The UK has been stronger than other European countries but may just be the last to begin slowing.
US Bond Yields Yields Trending Down (means prices go up)
Jeff’s Weekly Stock Market Commentary
Friday’sjobs report showed a noted decrease in hiring. It could be a sign that employers are becoming more cautious or it could just be a result of weather—time will tell for sure. One positive in the report was that lay-offs in the energy sector seem to be slowing down.
Beyond the jobs report though, the fact is that our economy is slowing and that should result in interest rates remaining lower for longer. As a result, we should see interest rates on US Treasury bonds continue to decline. That means additional profits in bond holdings like Vanguard Extended Duration ETF (EDV) and iShares Barclays 20+ Yr Treas. Bond ETF (TLT).
Attention Retirees:Do you have (or are you considering) an annuity that guarantees a 7% return?
If so, listen closely, because I believe that many retirees that have purchased annuities with an income guarantee have done so under false pretenses. They think it works one way when in fact, it doesn’t even come close to working the way they think!
Imagine putting your nest egg into something because you think it guarantees you a 7% return—only to find out later that it doesn’t! How would that make you feel?