The perception of an increased potential for a September rate hike drove market participants to sell just about every asset class, causing major stock indexes to decline by 2 ½%, Oil falling by 3 ½% and bond yields to rise to the upper end of their recent trading range. This emotional (over) reaction to some Fed members indicating that a rate hike might be warranted shouldn’t come as a surprise as every Fed observer has long known that the Fed wants to raise rates and continues to look for data that supports their desire to raise rates. Unfortunately, the ‘data dependent’ Fed is unlikely to find sufficient positive economic figures that supports such a move. And while the absence of strong data doesn’t mean the Fed won’t move, it is a strong indication that at most they will likely raise rates only once before taking another extended break from monetary policy action. As such, investors should expect a further flattening of the yield curve when the Fed moves, an environment that shouldn’t hurt the outlook for equities in the long-term.
This Week’s Market Moving events:
- Monday: Chinese Economic data (10 PM EST)
- Tuesday: German Economic data, Small Business Optimism Index
- Wednesday: Mortgage Applications, Import / Export data
- Thursday: Retail Sales, PPI, Empire State Manufacturing Survey, Business Inventories, Industrial Production
- Friday: Consumer Prices and Consumer Sentiment