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Home / Business / Markets hit new heights after Powell's speech, as some hear a dizzying sound

Markets hit new heights after Powell's speech, as some hear a dizzying sound




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Peter Foley / Bloomberg

The final summer week begins with investors likely digesting the latest words from Fed Chair Jerome Powell and waiting for the next round of inflation data, All this comes after markets have reached new highs on Friday, while Powell's remarks have been generally reluctant.

Powell was in the limelight Friday night, giving a speech in Jackson Hole he said many of the things he said earlier: the economy is strong, but he does not see the risk of overheating in terms of inflation, and he goes on to say that the risks he has mentioned included slow wage growth and rising public deficits, not mentioning any danger from possible trade wars.

His speech did not seem to be open to the prospect of a next rate hike by the Fed change month, a At least not judging by the futures market. There is still a better than 98% chance, according to CME Fed Funds Futures. The market seemed to interpret Powell's words as yielding, in particular he said that the economy is not overheating. Stocks rose in the hours after he spoke, and the dollar weakened against the euro.

Yet, even as Powell spoke, the gap between two-year and ten-year Treasury notes dropped below 20, reaching its lowest level in more than a decade. Some economists fear that a narrowing curve may point to an economic malaise, but there is little evidence to date. In addition, there was some positive news from Europe last week, as a rise in the local markets broke a three-week loss.

The week ahead

More to the speech below, but first we look at the week before the door. There is not much on the way to winning news, but the economic calendar is pretty full. The government is expected to submit its second second-quarter GDP estimate on Wednesday, followed by the closely monitored private consumer spending index (PCE) for July on Thursday. Both reports may shed light on how fast the economy is growing and if this growth could be reflected in inflation.

Investors may be considering keeping an eye on Washington DC, where the recent political uproar has not yet really materialized Not only the market but also the Treasury bonds, which have been strong lately because they are concerned with the Markets worried. Another potentially volatile area could be oil, which rose in the past week due to concerns about Iran. The price of crude oil has dropped very quickly from the recent lows.

One Man Show

On Friday, only one man took center stage: Fed Chair Powell. He has been very positive about the US economy throughout the year and that has not changed in his speech in Jackson Hole.

"The economy is strong," Powell said. "Inflation is close to our 2 percent target, and most people who want a job find one, my colleagues and I are watching the incoming data carefully, and we are setting policy to do what monetary policy does can support sustained growth, a strong labor market and inflation near 2 percent. "

Many investors and analysts were wondering what a" neutral "interest rate could be and where the" natural "unemployment rate should be. Powell did not answer any of these questions and said, "Although the unemployment rate is below the rate estimated by the Long Term Nature Rates Committee, estimates of this rate are rather uncertain, as are the estimates of the neutral interest rate."

Next month's "Dot Plot" showing Fed officials' views on where interest rates could go in the coming years could provide further clues as to where the Fed's current hiking cycle might end. The dot plot in June showed many estimates that will converge near 3% Fed Funds Rate in 201

9 and around 3.5% in 2020. The current rate is between 1.75% and 2%, about zero three years ago.

But not by CEOs

Apart from the Powell speech, trade is still the focus of attention as China / US Talks ended Thursday without much progress. While you never want to reduce the importance of the tariff between these two economic giants, it may help to keep things in context when you wonder how many US CEOs mentioned the tariff problem during the last quarterly profit calls. Some did, but it was a tangible handful and included some of the big multinationals like Caterpillar, Deere, General Motors and Apple.

Investors should remember that financial media coverage is often the focus Negatives and pricing around the clock are in line with this particular type of reporting. Every day you can read how bad things are, but the market is always new heights. The lesson might be to pay more attention to what business leaders say they are worried about, not some of the noise that might be out there.

And what are CEOs worried about? Well, the energy prices have been reflected in many profit announcements, especially in car and airline companies. But the tariffs have not shaped much of the CEO's conversation. As far as energy prices are concerned, they remain worrying, especially in light of increasing tensions between the US and Iran. The oil has risen sharply over the last week but remains well below the recent highs.

FIGURE 1: Summer lull? Not this year: After the summer months ended, both the S & P 500 and the Nasdaq (purple line) have risen more than 6% since May 31, as this three-month chart shows. This is despite the summer months, which are traditionally regarded as a slow time for stock market profits. Data source: Nasdaq, S & P Dow Jones indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results. Data Source: Nasdaq, S & P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade.

Getting Around: Like driving, but have no wheels? This seems to be the case for many US urbanites, reinforced by a new study by Cox Automotive, in which 57% of urban respondents state that access to mobility is more important than vehicle ownership, an increase of 13 points since 2015. Reasons for Auto avoidance The study also includes options such as ride-hailing and subscription programs that are becoming increasingly popular among young urbanites. In addition, 48% of respondents stated that buying or leasing a vehicle has become too expensive. "This means more and more consumers are looking for smart, technology-driven solutions that provide easy and cost-effective mobility over traditional vehicles," Cox said in a press release. Maybe not the best news for the automakers, many of whom had a tough month in July. August car sales are due in the first week of September.

Flow of Information: Recently there have been some rumors about the idea that companies may report revenue twice a year rather than quarterly. Proponents say that companies could be encouraged to keep an eye on the big picture rather than simply delivering the numbers for the next quarter, and that might include something. On the other hand, a profit cycle that is twice a year could penalize self-directed investors. It would probably mean less transparency and information for the average person trying to channel their 401 (k) and possibly more equity volatility if a company's situation changes dramatically after six months of silence. Volatility could have dammed up at that time and be greater than when the company reported quarterly and kept investors up to date. The editorial side of the Wall Street Journal weighed on Thursday: "There is little public evidence that quarterly reports are hurting investment, and it's undeniable that public markets will benefit from more information."

Sizzling Summer for Markets: The old cliché, "selling in May and going away" certainly does not look like it was a good strategy this year. The S & P 500 and the Nasdaq have each gained 6% or more since May 31st. The Nasdaq reached a new all-time high on Friday and the S & P reached an intraday market high last week and moved back to last January. Nevertheless, investors should not become complacent. Consider regularly whether you are reviewing your asset allocation and note that investing in fixed income can sometimes contribute to a balanced risk. Also keep in mind that for the markets that are currently experiencing new highs and the earnings season, it may be more difficult to find new positive catalysts in the coming weeks, and September has often been a challenging month for equities.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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Last week's summertime will begin with investors likely to digest the words of Fed Chairman Jerome Powell, wait for the next round of inflation data and watch the yield curve narrow. All of this comes after markets have reached new heights on Friday amid generally reserved interpretations of Powell's comments.

Powell was in the spotlight on Friday and delivered a speech in Jackson Hole that was not considered full of surprises. Instead, he said many of the things he said earlier: The economy is strong, but he does not see the risk of "overheating" in terms of inflation, and he continues to support the Fed's gradual rate hike policy. The risks he mentioned included slow wage growth and rising budget deficits. He did not mention any risk from possible trade wars.

His speech did not seem to change the likelihood of another Fed rate hike next month, at least not judged by the futures market. There is still a better than 98% chance, according to CME Fed Funds Futures. The market seemed to interpret Powell's words as yielding, in particular he said that the economy is not overheating. Stocks rose in the hours after he spoke, and the dollar weakened against the euro.

Yet, the difference between returns on two-year and ten-year Treasury notes, even as Powell spoke, dropped below 20, reaching its lowest level in more than a decade. Some economists fear that a narrowing curve may point to an economic malaise, but there is little evidence to date. In addition, there was some positive news from Europe last week as markets rallied over a three-week loss.

The week ahead

More on the speech below, but first let's take a look at the week at the door. There is not much on the way to winning news, but the economic calendar is pretty full. The government is expected to submit its second second-quarter GDP estimate on Wednesday, followed by the closely monitored private consumer spending index (PCE) for July on Thursday. Both reports may shed light on how fast the economy is growing and if this growth could be reflected in inflation.

Investors may be considering keeping an eye on Washington DC, where the recent political uproar has not yet really materialized Not only the market but also the Treasury bonds, which have been strong lately because they are concerned with the Markets worried. Another potentially volatile area could be oil, which rose in the past week due to concerns about Iran. The price of crude oil has dropped very quickly from the recent lows.

One Man Show

On Friday, only one man took center stage: Fed Chair Powell. He has been very positive about the US economy throughout the year and that has not changed in his speech in Jackson Hole.

"The economy is strong," Powell said. "Inflation is close to our 2 percent target, and most people who want a job find one, my colleagues and I are watching the incoming data carefully, and we are setting policy to do what monetary policy does can support sustained growth, a strong labor market and inflation near 2 percent. "

Many investors and analysts were wondering what a" neutral "interest rate could be and where the" natural "unemployment rate should be. Powell did not answer any of these questions and said, "Although the unemployment rate is below the rate estimated by the Long Term Nature Rates Committee, estimates of this rate are rather uncertain, as are the estimates of the neutral interest rate."

Next month's "Dot Plot" showing Fed officials' views on where interest rates could go in the coming years could provide further clues as to where the Fed's current hiking cycle might end. The dot plot in June showed many estimates that will converge near 3% Fed Funds Rate in 2019 and around 3.5% in 2020. The current rate is between 1.75% and 2%, about zero three years ago.

But not by CEOs

Apart from the Powell speech, trade is still the focus of attention as China / US Talks ended Thursday without much progress. While you never want to reduce the importance of the tariff between these two economic giants, it may help to keep things in context when you wonder how many US CEOs mentioned the tariff problem during the last quarterly profit calls. Some did, but it was a tangible handful and included some of the big multinationals like Caterpillar, Deere, General Motors and Apple.

Investors should remember that financial media coverage is often the focus Negatives and pricing around the clock are in line with this particular type of reporting. Every day you can read how bad things are, but the market is always new heights. The lesson might be to pay more attention to what business leaders say they are worried about, not some of the noise that might be out there.

And what are CEOs worried about? Well, the energy prices have been reflected in many profit announcements, especially in car and airline companies. But the tariffs have not shaped much of the CEO's conversation. As far as energy prices are concerned, they remain worrying, especially in light of increasing tensions between the US and Iran. The oil has risen sharply over the last week but remains well below the recent highs.

FIGURE 1: Summer lull? Not this year: After the summer months ended, both the S & P 500 and the Nasdaq (purple line) have risen more than 6% since May 31, as this three-month chart shows. This is despite the summer months, which are traditionally regarded as a slow time for stock market profits. Data source: Nasdaq, S & P Dow Jones indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results. Data Source: Nasdaq, S & P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade.

Getting Around: Like driving, but have no wheels? This seems to be the case for many US urbanites, reinforced by a new study by Cox Automotive, in which 57% of urban respondents state that access to mobility is more important than vehicle ownership, an increase of 13 points since 2015. Reasons for Auto avoidance The study also includes options such as ride-hailing and subscription programs that are becoming increasingly popular among young urbanites. In addition, 48% of respondents stated that buying or leasing a vehicle has become too expensive. "This means more and more consumers are looking for smart, technology-driven solutions that provide easy and cost-effective mobility over traditional vehicles," Cox said in a press release. Maybe not the best news for the automakers, many of whom had a tough month in July. August car sales are due in the first week of September.

Flow of Information: Recently there have been some rumors about the idea that companies may report revenue twice a year rather than quarterly. Proponents say that companies could be encouraged to keep an eye on the big picture rather than simply delivering the numbers for the next quarter, and that might include something. On the other hand, a profit cycle that is twice a year could penalize self-directed investors. It would probably mean less transparency and information for the average person trying to channel their 401 (k) and possibly more equity volatility if a company's situation changes dramatically after six months of silence. Volatility could have dammed up at that time and be greater than when the company reported quarterly and kept investors up to date. The editorial side of the Wall Street Journal weighed on Thursday: "There is little public evidence that quarterly reports are hurting investment, and it's undeniable that public markets will benefit from more information."

Sizzling Summer for Markets: The old cliché, "selling in May and going away" certainly does not look like it was a good strategy this year. The S & P 500 and the Nasdaq have each gained 6% or more since May 31st. The Nasdaq reached a new all-time high on Friday and the S & P reached an intraday market high last week and moved back to last January. Nevertheless, investors should not become complacent. Consider regularly whether you are reviewing your asset allocation and note that investing in fixed income can sometimes contribute to a balanced risk. Also keep in mind that for the markets that are currently experiencing new highs and the earnings season, it may be more difficult to find new positive catalysts in the coming weeks, and September has often been a challenging month for equities.

TD Ameritrade® commentary for educational purposes only. Member SIPC.


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