The week that was…
Earnings season began in earnest but the obsession with the Federal Reserve remained this past week. Tuesday, Thursday, Friday provided some fireworks although Tuesday was the only day with a significant end of day % change. Thursday and Friday were a bit of polar opposites with a gap up (or down) offset by the opposite move during the remainder of the session. Federal Reserve minutes were released Wednesday meeting which described the decision around holding rates unchanged as a “close call,” and indicated that Fed officials saw sufficient reasons for a hike but wanted to see further evidence of economic improvement with doves pointing to slack in inflation measures:
In the minutes from its September meeting, the Fed said it held steady but acknowledging that a rate increase was in the cards “relatively soon.”
The minutes tended a bit toward the dovish side, said Karyn Cavanaugh, senior market strategist at Voya Financial. “They were a little wishy-washy, not a lot of substance, leaning toward the doves, and no specificity about [a] December [rate hike],” Cavanaugh said. “We’ve seen this before and the market is looking at it with a jaded eye.”
“There was a little more color in these minutes, but no explicit mention of November or December. We would’ve liked to have seen that—we think another 25 [basis point] increase would be good for the economy—but there’s still time for the Fed to get more explicit,” said Deron McCoy, chief investment officer at Signature Estate & Investment Advisors.
Federal -funds futures show that investors were pricing in a roughly 70% chance to a rate increase in December.
Friday, a Janet Yellen speech went full dove yet again! We’ll go back to Karyn for comments!
Janet Yellen said it might be wise to run a “high pressure” economy, one with a tight labor market, to reverse the negative effects of the Great Recession.
Yellen is affirming the dovish tilt seen in the recently released minutes of September’s Fed policy meeting, said Karyn Cavanaugh, senior market strategist at Voya Financial. “These low rates are kind of silly, but the Fed is between a rock and a hard place,” Cavanaugh said. “It seems that she is OK to let the economy run a little hot before raising rates.”
Economic data that moves market was sparse until Friday’s retail sales report.
Sales at U.S. retail stores rebounded in September, with auto dealers and gas stations racking up the biggest gains, in a sign consumers are still spending enough to keep the economy on a slow but steady growth path. Retail sales rose 0.6% last month to snap back from a small decline in August that was the first in five months. Economists had forecast a 0.7% increase. Excluding autos and gasoline, retail sales rose at more moderate 0.3% clip in September.