Market Recap – Growth vs. Rate Hike Tug-O-War

in Market Commentary by

Market Digest – Week Ending 5/8

A strong jobs report Friday allayed concerns about the US economy slowing and brought stocks back into positive territory for the week. Employers added 223,000 jobs in April, bringing the unemployment rate down to 5.4%. In the UK, the Conservative Party had an election victory, giving Prime Minister David Cameron a majority in Parliament.

Weekly Returns:
S&P 500: 2,116 (+0.4%)
FTSE All-World ex-US: (+0.3%)
US 10 Year Treasury Yield: 2.15% (+0.04%)
Gold: $1,187 (+0.8%)
USD/EUR: $1.12 (+2.9%)

Major Events:
• Monday – Cisco announced Chuck Robbins will succeed John Chambers as CEO.
• Tuesday – Disney announced stronger than expected earnings, driven in part by continued success merchandising last year’s hit, Frozen.
• Thursday – Fitbit filed for an IPO.
• Thursday – Yelp was rumored to be evaluating a sale of the business as it struggles to meet user and revenue growth expectations.
• Thursday – The Conservative Party was deemed the winner of UK elections, gaining a majority in Parliament and bringing into question issues of Scottish independence and a break from the EU.
• Friday – The US economy added more jobs than expected in April. Official unemployment dropped to 5.4%.
• Friday – The Justice Department opened a probe into how the Baltimore police department stops, searches and arrests people.

Our take:

The market is stuck in a tug-o-war between desires for strong growth and fear of the Fed raising interest rates. Friday’s jobs report satisfied both – a “Goldilocks” scenario that drove stocks and bonds higher. While this provided a fuzzy feeling heading into the weekend, eventually one side will have to give.

The best scenario for stocks is if the economy grows a consistent, moderately strong rate which allows the Fed to raise rates slowly and in a measured way. There’s no reason to think that can’t happen, but economies are impossible to predict.

In San Francisco, it feels like things may be overheating. But with national hourly earnings up just 2.2% from a year ago, we’re reminded that doesn’t necessarily represent the bigger picture. So after last week’s disappointing Q1 GDP number, the strong jobs report was welcome news.

The following two tabs change content below.
Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

One Response

  1. Martin

    I do not think the numbers this government is publishing about economy are representing the reality. Even people around me do not feel this as recovery. There is a lot of uncertainty. Jobs quality is bad – just temporary part time jobs in hospitality sector. Is this sustainable? I don’t think so. Look at the salary growth. There is none! There has been none for 6 years!
    Thus I believe the Friday’s rally was just another overreaction on phony data and we will return back to selling. We are undergoing a distribution phase in the market. Big boys are getting out.

    Reply

Leave a Reply

Your email address will not be published.

Disclaimer. This communication and all data are for informational purposes only and do not constitute a recommendation to buy or sell securities. You should not rely on this information as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation. Third party data is obtained from sources believed to be reliable. However, PCAC cannot guarantee that data's currency, accuracy, timeliness, completeness or fitness for any particular purpose. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.