Tag Archives: Federal Reserve

initial claims for jobless benefits hit 199,000 in the week ending January 19, the lowest since 1969. And auto analysts are forecasting solid sales of cars and light trucks for the month. In other words, the data shows no justification for doom and gloom.

Don’t Obsess About the Federal Reserve

Don’t obsess about the Federal Reserve. Instead of obsessing about monetary policy, investors should spend their time this year focused on the resilience of the economy. For example, in spite of the partial government shutdown, initial claims for jobless benefits hit 199,000 in the week ending January 19, the lowest since 1969. And auto analysts are forecasting solid sales of cars and light trucks for the month. In other words, the data shows no justification for doom and gloom.

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We’ve written about it over and over, and while many advisors seem to understand, the media, politicians, and many analysts don’t…or won’t. So, we thought we’d try again to explain why so many people don’t understand the nearly ten year long bull market in U.S. equity values.

Why Not 50?

Why Not 50? Raising rates by 50 bps this early in the cycle isn’t going to make monetary policy tight. Right now, nominal GDP (real GDP growth plus inflation) is up 4.8% in the past year and up at a 4.4% annual rate in the past two years, well above the current federal funds target of 1.625%. The 10-year Treasury yield is about 145 bps above the funds rate. Meanwhile, the banking system is chock full of excess reserves and a record amount of capital. Congress and executive agencies are moving to undo some of the excess regulations on the banking system, there are no major bubbles in the financial system, and corporate balance sheets are in fantastic shape.

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Add it all up, and we get 2.5% annualized growth. In the context of tax cuts and deregulation, look for this growth to keep pushing profits higher. The bull market is poised to push higher in 2019.

Don’t Fear Higher Interest Rates

Don’t Fear Higher Interest Rates…why higher rates don’t mean the end of the bull market in stocks look no further than 2013. Economic growth accelerated that year, with real GDP growing 2.7% versus 1.3% the year before. Meanwhile, the yield on the 10-year Treasury Note jumped to 3.04% from 1.78%. And during that year the S&P 500 jumped 29.6%, the best calendar year performance since 1997.

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