Thursday, August 23, 2018

Since the ramp-up in the market back toward uncharted highs, we’ve been witness to a cooling off period over the past couple days. Analysts might point to any number of reasons for this, but at or near the top of the list must be the lack of catalysts in economic data or major earnings reports this week. Pre-market futures this morning continue to hover around a zero-balance.

Don’t blame Initial Jobless Claims, however — they are doing their part to stoke the fires of a robust labor market. Another stellar read this morning: 210K new jobless claims last week fell 2000 from the previous week’s tally, and below the 215K expected. Not only are we currently in a solid range of 200-225K — which many economists did not think possible to attain, much less sustain, only a few short quarters ago — but we are now firmly on the lower side of this range. Could we actually break lower than 200K claims in the near future?

Continuing Claims last week were just as impressive: 1.727 million are better than expected, and keep this figure hovering in a range well below the 2 million claims level which we saw for years during the economic recovery as the “promised land.” We see new non-farm payroll numbers in a couple of weeks, but all indications are we remain in a truly Goldilocks narrative. Perhaps we will see some strain down the road in the labor market, but there’s is nothing but smooth sailing on the horizon.

With that in mind, all ears will be tuned to Fed Chair Jay Powell’s speech tomorrow following the Fed presidents’ yearly retreat to Jackson Hole, Wyoming. We expect to hear confirmation about the Fed’s coming interest rate hike at the Federal Open Market Committee’s (FOMC) meeting next month, which would take the funds rate to a 2.00-2.25% range. This would be the first time crossing the 2% threshold since rates were slashed in the wake of the Great Recession nearly a decade ago.

And although this next rate hike is already considered baked in the cake, what investors will be listening for is language that asserts an overall hawkishness of interest rate policy. We already know President Trump is no fan of this philosophy; in fact, Trump has been critical of Powell personally for not having lived up to the president’s vision of a Fed Chair that would keep rates lower for longer.

The feeling there is likely that our strong bull market can only be upended by a tight constriction of interest rates on the general economy. Of course, the Fed itself is interested in making sure there is enough margin to pull back on interest rates once a new bearishness sets into the economy, whenever that might be. But mainly, people will be trying to make sure Powell doesn’t look to raise rates too high too fast.

Mark Vickery
Senior Editor

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