Absent of direction the market drifts into the weekend. I find that interesting when the jobs report at least had the appearance of being good. 223,000 jobs added in June and the unemployment rate fell to 5.3%. What more could you ask for other than a raise? Hourly earnings were flat and no growth in what employees are earning. Not good for spending side for the consumer. Overall it looked positive. I am not going to dig into the data and tell that their is nearly a 20% non-working effect in the US currently. We will just stay at the surface of the numbers and wander why the buyers were on the sidelines today? We could offer excuses that the Sunday vote in Greece is keeping many on the sidelines and taking some profits heading into the weekend. After all… we are celebrating our independence as a country, but our dependence of US citizens on the country/government to live. Sorry for the being a scenic, but the news continues to reveal the dependency of individuals on the government versus the individual working to progress independently. One big reason is job opportunities and flat wages. Thus, why the jobs report being positive on the broad view level, failed to stimulate a positive outlook for investors.
As we start the long weekend it is time to spend time determining what is on the horizon based on what we know and what we believe to be true. There are some definite themes arising from the chatter and speculation from the first half of the year. Interest rates is likely to be the single biggest issue that will impact markets both domestically and internationally as we move through the second half of the year. The Fed has put themselves in a corner on this issue as they stated they would like to hike rates twice prior to year end. That puts the September meeting square on the docket as the target for the first hike. Bonds and interest sensitive assets have been pricing in this move over the last two months. Thus, the initial reaction to the first hike should be more muted than the next. The next increase would signal the seriousness of the Fed to push rates higher and it will invite the next question of how much higher do they push rates. Without clarity speculation will become the driving factor in the bond sector. Look to exit should the downside accelerate if you have not already done so.
Banks should be a benefactor from the above theme as they make more money in a rising interest rate environment. The volatility in the sector of late has tested the resolve of that logic. However, you have to give some credit to the issues in Greece and Puerto Rico to raising speculation on how much exposure the US banks have to the debt, etc. There is always risk with the greatest being speculation about things we don’t know or can’t control. That said, I still like the upside opportunity in the banks with more emphasis on the regional banks.
The ever illusive issue of the improving economy? Plenty of writing, teaching, speculating and pontificating about the improving economic picture. I am waiting. It has seen some better parts, but as a whole not much is changing. GDP weakness is likely to improve in Q2, but it will still not be impressive. My concern is how investors and traders will respond if the data doesn’t measure up going forward? Does it act as the catalyst for selling and creating a correction the pundits are predicting? To quote the 1992 election theme… “it’s about the economy stupid!”
There is plenty to ponder as I stated, but in the end we have to invest and manage our money based on reality. The reality currently is uncertainty, and I can not say the future looks any clearer. As the dust settle with interest rates, the economic picture, Greece, Europe, China and other issues we will know with certainty and clarity which side of the market our money belongs.
Have a very Happy 4th of July Celebrations and please celebrate and be thankful for your independence. Do me a favor read the Constitution of the United States of America and hold our elected officials to uphold the RIGHTS of WE the PEOPLE!