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Interest Rate Hike Still Not Expected Any Time Soon

Last week’s jobs report for June was unexpectedly high, leading to record highs for some stocks. While the economic indicator is important in measuring, investors should not bank on it being the sole reason to invest as a bear or bull, for that matter.

There are particular sectors that could make for solid investments, including retail, health care and food services. These sectors have added jobs on a month-over-month, and year-over-year basis, which bodes well for them being considered as long-terms investment plays.

However, in the short-term, investors should be pragmatic in making their investment decisions.
 

 · Consumer confidence

 
Many investors took solace in the report as being an indicator that the economy is thriving and expanding. Furthermore, some market observers think it would be foolish to not see the strong jobs report as a reason to invest.

Erik Davidson, chief investment officer at Wells Fargo Private Bank, believes this is a golden age to be a consumer in the U.S., and he notes the jobs report as showing solid jobs growth. The relatively strong dollar and low interest rates that make borrowing cheap, as reasons investors should consider investing in the consumer discretionary and technology sectors.
 

 · Making lemonade of lemons

 
Friday’s stock market rally was expected, and many investors hailed it as being a reason the Federal Reserve Board would increase interest rates this year.

When it is raised, the general effect is a lessening of the amount of money in circulation, which works to keep inflation low. It also makes borrowing money more expensive, which affects how consumers and businesses spend their money; this increases expenses for companies, lowering earnings somewhat for those with debt to pay. Finally, it tends to make the stock market a slightly less attractive place to investment.

This put back at the forefront the main headwind investors must keep in mind about the stock market – when and if the Federal Reserve will raise interest rates.
 

 · No foreseeable interest rate hike

 
As investors search for reasons to invest in the stock market, the low interest rate environment continues to give many pause and angst.

The importance of strong job growth is part of the Federal Reserve’s analysis process in determining if they should raise interest rates from their historic lows.

Investors had been exuberant prior to the release of the May jobs report over the real possibility of the Federal Reserve raising interest rates last month. Those hopes were dashed when those May numbers came in surprisingly, and terribly low at under 40,000. When Federal Reserve chair Janet spoke to members of Congress in June, she noted those weak numbers as reasons as to why the fed would continue to watch job growth numbers before raising rates.

Investors should be clear in understanding that the better-than-expected numbers posted in June will not likely be the catalyst for the reserve board to raise rates in the foreseeable future. What is needed are increasing month-over-month job growth numbers, or at least steady numbers.

This type of thought is further bolstered by the thought that the Federal Reserve isn’t going to raise rates in the immediate future, such as July, when the board meets again.

Investors are searching for reasons to believe that the economy is on path for continuing improvement. The jobs report provided some solace; we’ll get a better idea of how the Fed may move in regards to the interest rate through the second half of the year.





One response to “Interest Rate Hike Still Not Expected Any Time Soon”

  1. This was an excellent article. Much better than some of the stuff I read out there. I’m curious to know your guys’ thoughts on the negative yield environment that seems to be growing quickly. I’ve been writing about it a lot recently on my site and would love your perspective. I too think the FED will leave rates unchanged in July.

    Passive Income Dude
    http://www.passiveincomedude.blogspot.com

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