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Markets Appear to Like Lower Likelihood of Summer Interest-Rate Hike

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June 7, 2016

(Tuesday Market Open) That old stock-market mantra “Sell in May and go away,” looked to negate itself again Monday when all three major benchmarks closed solidly higher with the S&P 500 (SPX) notching its best finish of the year and now sitting just shy of its all-time high.

In the early going, the arrows on SPX, the Dow Jones Industrials (DJIA) and the Nasdaq (COMP) all pointed upward in what some analysts depicted as a sigh of relief after Friday’s weak jobs numbers and Fed talk narrowed the likelihood of a Federal Reserve hike in interest rates this summer. Energy stocks led the way on the SPX.

The CME Group Fed Funds tool, which tracks options on changes in U.S. monetary policy, has seen its prospects for a June hike dive big time, sitting now at a mere 4%. A week ago, it was at 32%. July’s expectations are only at 27% compared with better than 60% a little more than a week ago. The first time the outlook tips above 50% is for an increase in November, though it is only a 51% probability, according to CME.

Much of that appears to have been nourished by Fed Chair Janet Yellen, who gave the markets a lift yesterday when she delivered a slightly more hawkish speech—likely her last before next week’s FOMC meeting—by noting that though the jobs numbers were “disappointing,” one month does not make a trend. “Although this recent labor market report was, on balance, concerning, let me emphasize that one should never attach too much significance to any single monthly report,” she said. “Other timely indicators from the labor market have been more positive,” she added, noting that the number of people filing unemployment claims “remains quite low.” To be sure, she does expect interest rates to rise but stopped short Monday of giving a timeframe.

Oil prices also appeared to be in rally mode after attacks on pipelines in Nigeria helped drive gains though Yellen’s tone calmed earlier advances yesterday. West Texas Intermediate (CLN6) climbed 2.2% to settle at $49.69 a barrel, its highest point since November. In early trading today, oil prices were higher better than 1%. Since January, prices are up nearly 60%.

S&P 500

FIGURE 1: A HIGH.

The S&P 500 (SPX), plotted through Monday on the TD Ameritrade thinkorswim platform, closed above 2,100, finally. It was the highest close in seven months. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Starbucks, the Economy and Politics. In the wake of a rough earnings season for retailers, Howard Schultz, chief executive of Starbucks, told CNN Money late last week that consumers are thirsting for political leadership. “Retail brands that have all reported are beginning to demonstrate that there is significant pressure on the U.S. consumer,” he said. “Starbucks is not immune and we have to navigate through that. But the uncertainty, anxiety, and cloud hanging over the American people as a result of the political situation, I think, is adding to that level of anxiety and uncertainty for both the consumer and in the stock market.” Does that mean consumer spending won’t pick up until after November? If so, that important Christmas shopping season may be a big winner this year.

JDs Worth More. Here’s welcoming news for recent graduates with law degrees: The New York Times reports that Cravath, Swaine & Moore, one of the legal industry's most elite law firms, upped its annual pay for its first-year lawyers to $180,000, from $160,000. It’s the first pay hike for entry-level lawyers in nearly a decade, NYT says, and may be a catalyst for other firms to do the same given the level of competition for the best and the brightest. While salary levels may be seen as a benchmark of a firm’s degree of success, this move also underscores the escalating costs of living in the Big Apple, according to NYT.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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