The recently released minutes from the Federal Reserve’s (Fed) September policy meeting, along with the Consumer Price Index (CPI) and Producer Price Index (PPI) data, have kept the markets focused on inflation. Inflation is half of the Fed’s “dual mandate” to maximize sustainable employment and keep inflation low and stable. These two mandates often conflict and usually require a balancing act. Getting to maximum employment usually implies that the Fed should be more accommodative; keeping a lid on inflation implies that it should be more restrictive.
This week marks the 30th anniversary of the 1987 stock market crash in what has come to be known as Black Monday. The Dow plunged more than 22% on that day — the equivalent of a more than 5,000-point drop today — while markets around the world suffered severe declines as well. Here we look back at the crash,draw some comparisons to today’s market environment, and offer some comfort to those who may fear a repeat.
Mortgage-backed securities (MBS) have been one of the best performing high-quality asset classes over the past month, even in the face of Federal Reserve (Fed) balance sheet normalization. The lower interest rate sensitivity of MBS relative to other high-quality bond sectors accounts for some of its recent strength, though spreads (the yield differential between MBS and Treauries) have also tightened considerably since the beginning of September.
Economic reports released in September 2017, which mostly reflect economic activity in August but also include some weekly data and preliminary reports for September, were already showing the impact of three powerful hurricanes that hit Texas, Florida, Louisiana, and Puerto Rico in August and September. The economic impact of these events was significant, but the impact on everyday lives as these regions start to recover and build, is difficult to capture.
The Portfolio Compass provides a snapshot of LPL Financial Research’s views on equity, equity sectors, fixed income, and alternative asset classes. This monthly publication illustrates our current views and will change as needed over a 3- to 12-month time horizon. Read recent issue...
Stock markets, bond markets, the economy, policy — some years they push and pull on each other lightly as markets follow their own path; in others, one influence, such as monetary policy, dominates. But sometimes, often following a period of change, understanding the pushes and pulls and how they interact becomes a key to reassessing market dynamics for the next year and beyond.
An important shift has taken place in this economic cycle. The Federal Reserve (Fed) was finally able to start following through on its projected rate hike path, raising rates twice in just over a three-month period. By doing so, the Fed showed increasing trust that the economy has largely met its dual mandate of 2% inflation and full employment, that the economy is progressively able to stand on its own two feet, and that fiscal policy may now provide the backstop to the economy that monetary policy has provided throughout the expansion.
During any presidential election, you can expect a barrage of promises from the yard sign endorsements, bumper stickers, stump speeches, and media headlines. All pledge to improve the economy, provide better education for all, and preserve the environment.
The Economic Cycle - We believe we are in the mid-to-late stage of the current expansion, but we are still seeing some early cycle and late cycle behavior. Extended loose monetary policy, inflation, and employment growth are still exhibiting early cycle behavior, while some items relating to corporate profits are showing late cycle behavior, although they may be reset if profits improve.