Weekly Economic & Market Update 11/16/2015

Week in Review

Global equity markets moved lower last week after many of the US Federal Reserve (FED) Presidents gave speeches that collectively spun a tale of confusion with regards to the topic du jour – interest rates. Below is the CliffsNotes version of some comments from each of the speeches given on November 12, 2015:

  • James Bullard – St. Louis FED – Reiterated his advocacy for ending the zero-interest rate policy of the FED, does not see reason to continue extreme economic policies; believes the US economy is “quite close to normal today based on an unemployment rate of 5%.”
  • Jeffrey Lacker – Richmond FED – Believes rates should rise now.
  • Charles Evans – Chicago FED – Does not believe we are there yet on the employment front; housing is still weak, deflation risk is still very real. He is undecided on the interest rate dilemma but did reference that a lift off in rates is likely the choice given the threat of deflation.
  • William Dudley – New York FED – The conditions to normalize rates will soon be met, a rate rise would be a gradual pace, and he stated that to “sum up growth side, the economy looks to be in decent shape and is likely to continue to grow at a slightly above-pace trend.”
  • Stanley Fischer – FED Vice-Chair – Sees the economy as doing okay considering the US dollar rise, and December is still on the table for a rate rise.

In summary, the speeches were somewhat contradictory but leaned more toward the side of a rate rise being in the offing. Therefore, market participants took this cue as a time to banks some profits. There are more FED speeches on deck for this coming week and likely similar volatility as we saw last week. Unfortunately, the markets are now very sensitive to each utterance from the FED with regards to when interest rates will rise.

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.

Chart 1 – S&P 500

SPX 11.16.15

Chart 2 – Aggregate Bonds

AKG 11.16.15

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