October Employment Report Suggests December Rate Hike Likely11-10-2015 |
Sources: Equity Market, Fixed Income and REIT returns from JP Morgan as of 11/06/15. Rates and Economic Calendar Data from Bloomberg as of 11/09/15.
Friday’s hotly anticipated release of the October employment situation did not disappoint. 271,000 jobs were added during the month beating estimates that ranged from as low as 150,000 to as high as 240,000. The jobless rate also fell to 5.0% from 5.1% and wages, as measured by average hourly earnings, rose 0.4% from the month prior. The strength of this release has many on Wall Street, including us, now believing that a rate hike before year end is highly likely. In fact, according to Bloomberg, the futures market was pricing in a 70% chance of a rate hike before year end during Friday’s trading.
Stocks in the U.S. (as measured by the S&P 500 index) finished the week higher to post a sixth consecutive week of gains despite falling a point in mixed trading during Friday’s session. This extends the index’s quarter-to-date return to 9.6%. Moving towards the end of 2015, volatility is likely to continue and potentially increase as we approach the December 15-16 Fed meeting, tax related trading begins, and institutional portfolio balancing takes place. This volatility may present investors with opportunities to deploy cash. If you are concerned about the potential performance of stocks during periods of higher interest rates, consider that historically there is a positive relationship between U.S. stock prices and a rising fed target rate when the 10-year U.S. Treasury yield is below 5.0%*. The 10-year U.S. Treasury yield is currently 2.32%.
When looking for new investments it is important to understand how the security, or asset class/sector, will fit into your overall portfolio and how it will affect your long term goals. To find out how much risk you are assuming today, and how a new investment may benefit or detract from your portfolio as a whole, please speak with your Hennion & Walsh Financial Advisor or a member of the Hennion & Walsh Asset Management Team.
*According to JPMorgan as of 9/30/2015
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DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITSs that primarily own and operate income-producing real estate.