George Hosfield, CFA, discusses Ferguson Wellman's quarterly strategy titled, "Inflation's Flame Flickers," which addresses the narrow market leadership, the impact of higher interest rates on inflation and how assets are priced at this stage of the economic cycle.
George Hosfield, CFA, discusses the firm's quarterly strategy titled "Stalemate," which highlights the Fed's ongoing battle to tame inflation along with our views on the health of the banking industry and capital market expectations for the balance of the year.
Director and Chief Investment Officer George Hosfield, CFA, discusses the Fed raising interest rates, peaking inflation and our view on equities and volatility across all asset classes in our Investment Strategy titled, “Balancing Act.”
As February draws to a close, so does our first quarter outlook season. We enjoy hitting the road and sharing our 2025 Investment Outlook with clients and colleagues, and are grateful for the chance to come together and look forward to what's ahead.
On Wednesday, the last significant economic data release occurred before the Federal Open Markets Commitee (FOMC) meeting next week. Overall, inflation appears to be tamed with the August Consumer Price Index (CPI) falling to a 2.5% growth rate compared to a year earlier, hitting a new three-year low.
Last week, over 28 million unique viewers tuned into the Games of the XXXIII Olympiad opening ceremony in Paris, France, double the combined state populations of Oregon, Washington and Idaho. The ceremony set the stage for the coming weeks of competition and allowed viewers to catch their first glimpses of the best athletes in the world. This week, investors were focused on a different stage: the Federal Open Market Committee (FOMC) press conference, which offered insight into the Fed’s future perspectives on inflation and employment.
It was an action-packed week headlined by Wednesday’s economic “doubleheader.” The Federal Reserve’s June meeting took place the same day as the release of the Consumer Price Index (CPI) inflation report.
At Ferguson Wellman, we are nearing the end of our Mid-Year Update events season, where we present updates to our yearly Investment Outlook and deepen our connections with clients and the community.
Investors buffeted by the ongoing correction in stocks and bonds could be forgiven for asking this question. The Fed’s aggressive half a percentage point increase in interest rates last week coupled with another report of elevated inflation earlier this week are serving to continue the turbulence investors have experienced so far this year.
“Are we there yet?” is a familiar back seat refrain that often occurs during long, summertime road trips involving bored children and their beleaguered parents. As we transition through our second COVID-affected summer, this frustration is also felt by investors and other market participants who long for some return to “normal.” Surely, we must all be there by now, right?
A year ago, Federal Reserve Chair Jerome Powell famously said, “We’re not even thinking about thinking about raising rates.” At this week’s Federal Open Market Committee (FOMC) meeting the Fed took its first tangible steps to lay the groundwork for a gradual removal of the stimulus measures enacted last year.
Earlier this month in an interview with 60 Minutes, Federal Reserve Chair Jerome Powell indicated he believed the U.S. economy “seems to be at an inflection point” due to widespread vaccinations and previously enacted stimulus measures. He added his expectation that the economy would begin to grow “much more quickly” and that the pace of job creation would accelerate.
Assumed to be postulated by Aristotle, “horror vacui” roughly translates to “nature abhors a vacuum.” The financial market equivalent would be “horror incertae,” or “markets abhor uncertainty.”
When the Federal Reserve cut their overnight policy rate by a total of 2.0 percent to the zero bound in the fourth quarter of 2008, few investors would have anticipated it would be another seven years before the Fed felt economic conditions warranted raising that policy rate by even one-quarter percent.
“The path of the economy will depend significantly on the course of the virus.” Chairman Jerome Powell reiterated this point emphatically in his comments following the two-day meeting of the Federal Open Market Committee (FOMC). To most people this may seem like stating the obvious, but sometimes it bears repeating, especially considering the data released this week.
With just a couple of weeks left to go in the second quarter, investors wanting for a lack of earnings news found plenty of economic reports and central bank meetings to freshen up their views of the macroeconomy.
The markets had to digest weighty geopolitical headlines this week with tariffs, North Korea and a messy political landscape in the European Union dominating the news cycle.
Charles Dicken’s iconic tome illustrates aptly the interplay between earnings news and economic news of late. Every day it seems good earning news is complemented with slowing economic news and vice versa. Recent market volatility has pushed cautious investors to the sidelines and those that remain are riding the markets up and down with every recent news release.
This week we experienced something we haven’t in some time: a down week. Stocks struggled to a close, down 3.8 percent with no help from blue-chip names. Alphabet (GOOGL) and Apple reports weren’t favored by Wall Street, driving the stocks down 5.2 and 4.3 percent, respectively.
As the Western states struggle with wildfires and the Southeastern states get pounded by hurricanes, the stock market quietly made new highs. The S&P rallied this week 1.4 percent, closing in on the psychologically important 2,500. Conversely, bonds felt the swing into equities with rates on the 10-year U.S. Treasury rising 13 basis points to 2.20 percent.
Despite volatility, the stock market appears to heading for a slight gain of around 0.5 percent for the week. Bond yields trended higher, with the benchmark 10-year trading at 1.66 percent versus last Friday’s level of 1.57 percent.
Stocks finished the week off by only 0.80 percent, recovering some of the losses suffered Thursday after the Fed voted to keep interest rates unchanged. Similarly, the Bank of Japan and Bank of England are also maintaining their monetary
by Shawn Narancich, CFAExecutive Vice President of Research
Seeing the Forest through the Trees
The nexus of anxiety surrounding China and its slowing rate of growth eased this week as both the Red Giant and its neighbor Japan signaled tax cuts and infrastructure spending, the kind of expansionary fiscal policy many market watchers have been anticipating. Chinese leaders have been vocal in attempting to reassure markets about their economy but the latest evidence of declining exports and imports reported earlier this week continues to point to an economy struggling to make the transition away from investment-led growth. Though slower growth in China and recessions in Brazil and Russia are dampening the earnings of U.S. multinational companies operating in these countries, we see nothing more systematic in the latest stock market correction. As they say, this too shall pass.
All Over but the Yellen
All of which brings us to next week’s Federal Reserve meetings, at which time FOMC policymakers will convene to decide whether the U.S. central bank will finally lift short-term interest rates, which have been targeted to zero percent for nearly seven years. Arguably, the Fed has achieved its employment objective as measured by an unemployment rate approaching 5 percent and a job base that has joined GDP in record territory. What hasn’t been achieved is the Fed’s price objective of 2 percent inflation, and though Chairwoman Janet Yellen has signaled her belief that low oil prices and the inflation dampening effect of a strong dollar are transitory, some pundits question the sagacity of moving on rates with inflation so far from the target.
Will Tighter Labor Markets Hold Sway?
We agree with Yellen’s view on both points – our belief is that oil prices have bottomed and will rise from here, and that the best gains of the trade-weighted dollar have already been achieved. What’s driving Fed hawks to be pro-active in raising rates ahead of any visible inflation is the labor market which, according to this week’s Job Openings and Labor Turnover Survey (JOLTS), now sports the highest level of unfilled jobs in 15 years. High demand for jobs relative to the supply of labor could draw disaffected workers off the sidelines but tighter labor markets might also begin to force employers to raise wages and salaries to attract and retain talent. So while investors have yet to see the evidence of a tightening labor market in key statistics, like wage growth and rising unit labor costs, we would argue that the Fed is best served to be anticipatory in setting monetary policy.
Our Takeaways from the Week
