Weekly Economic & Market Update 10/12/2015

Week in Review

Global markets moved higher across the board last week on few economic data releases. A significant driver for global markets was what appeared to be just another Regional US Federal Reserve Presidential speech. This past Thursday, Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, gave a speech entitled “Still Room for Improvement.” During the course of his speech, Mr. Kocherlakota focused primarily on inflation and the labor market to make the case that to achieve improvement the “right monetary policy choices” will have to be made.

On the labor market front, Mr. Kocherlakota pointed to the employment-to-population ratio of people between the ages of 25-54 over the last ten years. He noted that from 2006 to 2009 the ratio for this cohort dropped from 80% to 75% and since 2009 it has risen sluggishly to 77%. Much of the gains in employment for this group happened in 2014 with 2015 then reverting back to sluggish gains.

On the inflation front, Mr. Kocherlakota pointed to the personal consumption expenditures’ (PCE) drop through 2014 and its mild uptick in 2015. The Federal Reserve targets 2% year-over-year growth rate in PCE. Currently, PCE sits at .3% on a year-over-year basis.

The most important and market moving point that Mr. Kocherlakota made in his speech came in his last sentence – “Indeed, to best fulfill its congressional mandates, the committee should be considering reducing the target range for the Fed funds rate, not increasing it.”

To be sure, few sweeter words have been spoken in the last 24 months to Wall Street than the above. Not only has this Fed President eschewed the idea of raising rates, he is looking for negative interest rates, because as the below chart shows, there is no other way to take rates lower than into negative territory. Time will tell what actually happens, but public discussion is where all of the economic accommodation programs have started.

Statistics given by Federal Reserve Bank of Minneapolis President Narayana Kocherlakota are taken from the Bureau of Labor Statistics and the Bureau of Economic Analysis.

S&P (2) 10.12.15

Statistics given by Federal Reserve Bank of Minneapolis President Narayana Kocherlakota are taken from the Bureau of Labor Statistics and the Bureau of Economic Analysis.

We will continue to monitor the markets and the central bankers that are moving the markets.

Getting Technical With Market Charts

In this section we present charts of the S&P 500 Stock Index and the US Bond Market Index relative to their 50 day (blue line) and 200 day (red line) moving averages. In addition, we have added the blue shaded area which represents the recent trading channel. The 50 and 200 day moving averages are widely followed market trend indicators that provide a general picture of the health of the broad indexes.

Securities are offered through First Allied Securities, Inc. (FASI), a registered Broker Dealer, Member FINRA/SIPC. Advisory Services offered through Lighthouse Financial Advisors, Inc., a Registered Investment Advisor dba Lighthouse Wealth Management (LWM). Lighthouse Financial Advisors, Inc. is not a subsidiary or control affiliate of FASI.

Chart 1 – S&P 500

S&P 10.12.15

 

Chart 2 – Aggregate Bonds

AKG 10.12.15

Disclaimer – Information contained herein is taken from sources believed to be reliable, but cannot be guaranteed as to its accuracy. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. The Standard and Poors 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Contact your investment professional to discuss suitability for your particular circumstances. This article does not constitute an offer of sales of any securities. Securities trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Lighthouse Financial Advisors, Inc., dba Lighthouse Wealth Management, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.