We are in the countdown days to the September Federal Reserve meeting. Most commentators expect a hike. Another Federal Reserve Governor came out this week saying he would probably vote for an increase. Markets are nothing if not efficient discounting machines and have priced in this this rate hike. Rate increases by themselves mean very little for markets. In the 2000s, the Fed doubled the Fed Funds rate in 2004 (from 1% to 2%) and 2005 (from 2% to 4%), with another 1% rise in 2006 to 5.25%, but equities rose 11%, 5% and 16% each year respectively.
What the markets react to is economic and financial news. The employment data for July came out this week. New jobs came in at 215,000, below consensus and a slowdown from the last year-and-a-half. But probably not enough to change anyone’s mind at the Fed.
Wages and personal income continue to be under pressure, as indeed they have been for most of this recovery. The graph below shows the year on year growth of hourly wages, which have struggled to remain above 2%.
Putting all this together, we are fine with the market slowdown. It’s not the most exciting of times but this is when patience can pay off.
Bottom Line: equities are quiet for now; fundamentals drive long-term performance and they’re in fine shape.
--Brouwer & Janachowski, LLC
Advisor cannot guarantee the accuracy or completeness of any statements or numerical data in this commentary. Past performance is no indication of future results.