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March 13 2017

Rate hike ahead… maybe.

Last week’s U.S. employment report was better than expected. The United States added 235,000 jobs in February, which was a few more than economists had forecast.

It may seem counterintuitive, but the positive economic data helped push U.S. stock markets lower. The jobs report was a sign the American economy continues to be strong and indicates a rate hike may be on the horizon. Barron’s reported:

“If anything, the data just confirms what we’ve known for a while now: The economy is growing, and one rate hike is unlikely to do much damage…There’s still a strong likelihood of some sort of economic stimulus plan from the Trump administration sometime this year…But the fact that tax cuts and infrastructure projects are even being considered at a time when the U.S. economy is adding 200,000-plus jobs a month is ‘unprecedented’…”

Federal Reserve (Fed) interest rate hikes affect stock markets because they make borrowing more expensive. Higher borrowing costs may reduce the amounts people and companies spend and affect companies’ profitability and share values.

At the end of last week, CME’s FedWatch Tool, which gauges the likelihood of changes in U.S. monetary policy, indicated there was better than an 88 percent chance of a rate hike when the Fed meets on March 15.

It’s interesting to note investor sentiment has become less optimistic. Last week, the AAII Investor Sentiment Survey showed investor pessimism had reached its highest level since February 2016. Bearish sentiment increased by almost 11 points, finishing at 46.5 percent. That’s significantly higher than the historic average of 30.5 percent. Bullish sentiment fell by almost eight points to 30 percent. That’s below the historic average of 38.5 percent. The AAII survey is often used as a contrarian indicator.

Sources:
http://www.barrons.com/articles/major-indexes-suffer-their-first-loss-in-weeks-1489210563?mod=BOL_hp_we_columns
http://www.investopedia.com/investing/how-interest-rates-affect-stock-market/
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
http://blog.aaii.com/aaii-sentiment-survey-most-pessimism-since-february-2016/
http://www.aaii.com/journal/article3/is-the-aaii-sentiment-survey-a-contrarian-indicator

  • Data as of 3/10/20171-WeekY-T-D1-Year3-Year5-Year10-Year
  • Standard & Poor’s 500 (Domestic Stocks)-0.0040.060.1930.0810.1160.054
  • Dow Jones Global ex-U.S.0.15.211.7-1.71.9-0.9
  • 10-year Treasury Note (Yield Only)2.6NA1.92.824.6
  • Gold (per ounce)-1.93.8-5-3.6-6.76.4
  • Bloomberg Commodity Index-3.4-3.76.2-14.6-10.3-6.6
  • DJ Equity All REIT Total Return Index-4.2-1.18.39.810.34.4

*Indices are unmanaged and investors cannot invest directly in an index.
*Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*S&P 500, Gold, Dow Jones Global ex-Us, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend).
*The DJ Equity All REIT Total Return Index does include reinvested dividends.
*All investments involve risk – coins and bullion are no exception. The value of the bullion and coins is affected by many economic circumstances, including the current market price of bullion, the perceived scarcity of the coins and other factors. Therefore, because both bullion and coins can go down as well as up in value, investing in them may not be suitable for everyone. Since all investments, including bullion and coins, can decline in value, you should understand them well, and have adequate cash reserves and disposable income before considering a bullion or coin investment.

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Bart A Zandbergen, CFP® is a Registered Investment Advisor with Optivest, Inc and a Registered Representative with Gramercy Securities, Inc. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.

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