Stocks Rise Even Under the Threat of Rate Hikes
The S&P 500 grew by about 0.8 percent with financials increasing by almost 2 percent while the NASDAQ rose by an estimated 1 percent. The benchmark index even broke its all-time intraday high of 2,178.29 during the midmorning trade. Adam Sarhan, the CEO of Sarhan Capital, said, “The big takeaway is that the market is doing exactly what it needs to do to move higher.”
CNBC published an article confirming that in July, the United States economy added 255,000 jobs. This number was much higher than the 180,000 jobs that the experts were predicting. The unemployment rate stayed the same at 4.9 percent. This is the second month in a row that the numbers surprised economists. With these numbers, the labor market has now seen growth for 85 months. This is its biggest expansion since the ‘90s.
The Haps in Other Markets
After two consecutive days of solid gains, the oil market decided to take a break. U.S. crude landed 0.31 percent lower at $41.80 a barrel. The U.S. Treasuries wiped out slight gains following the release of the country’s jobs report with the two-year note yield hanging on at about 0.71 percent while the benchmark 10-year yield hovered around 1.58 percent.
Bank Stocks Rise the Most
Bank of America rose by 3.9 percent, and Citigroup saw an increase of 4.3 percent. The report calmed investors, but the country’s current political environment is causing them to feel uneasy. Kate Warne said, “With an election where both candidates are likely to talk about how badly the economy is doing and how disappointing growth has been, investors as a whole are more anxious than the job picture would suggest.”
For months, the Federal Reserve has been confirming that it will raise interest rates if the economy becomes strong enough to warrant it. July’s report certainly gives the agency the evidence that it needs to follow through. However, some industry insiders believe that this would be a blunder of epic proportions.
Will the Fed Make a Mistake by Raising Rates?
The Economist reports that the Federal Reserve shouldn’t raise interest rates for three main reasons. First, diminished expectations for labor markets have caused many industry experts to overlook the fact that workers should be doing better than they are. When considering the employment-to-population rates and the labor-force participation rates, both segments are incredibly depressed compared to their pre-crisis levels. If the Fed raises rates, it could delay American expansion.
The second reason to hold off on a rate hike is that it may lead to capital inflows, which push up the dollar’s value and cause growth to lag. Inflows may be able to prevent demand from dropping too much if they can boost American investment. However, they could wind up increasing the price of treasuries. If this happens, it may bring about financial problems elsewhere in the world.
The third reason that raising rates is a mistake is because of the global interest rates and inflation. Both are low right now, and this makes it risky to tighten up too much. James Marple, a senior economist for TD Bank Group, said, “I think the Fed is in a conundrum.” It’s likely that the central bank will be keeping a close eye on the economy to see if it shifts higher toward job growth or if it heads in the direction of business investments, which are currently down.
Doing the Smart Thing
Soaring stocks give investors increased confidence that the country’s economy is growing. Despite what the banks want, it isn’t the Fed’s responsibility to raise interest rates as high as possible as quickly as possible. Instead, the agency should be working toward stable and healthy economic growth. If the Fed fails to leave a cushion to cover economic downturns, then it will be unable to support the economy in the way that it should. To learn more about the latest stock market and interest rate changes, visit the PersonalMoneyStore.