May the Odds Be Ever in Your Favor


by Timothy D. Carkin, CAIA, CMT Senior Vice President

The markets were quiet this week investors awaited Janet Yellen’s commentary on the Fed’s annual Jackson Hole summit. As the week came to a close, the S&P 500 sold off slightly, finishing the week down 0.6 percent. Healthcare stocks fared far worse, selling off 2.2 percent following Hillary Clinton’s statements regarding the price increase of EpiPen®, a Mylan Pharmaceuticals product. The 10-year U.S. Treasury finished the week around 1.62 percent, with yields slightly higher due to the mixed messages from the Federal Reserve regarding when the next Fed hike may occur.

Jackson Hole Summit

As is customary, Janet Yellen spoke after the Fed’s annual Jackson Hole summit. Yellen again made a case for a rate hike by hinting, but not outright saying, a September Fed rate hike is not off the table by stating, “I believe the case for an increase in the Fed Funds rate has strengthened in recent months.” Yellen once again clarified the Fed’s dilemma: they want to raise rates but may stay low in the near term. But Yellen was not the only cheerleader for a rate increase. Vice Chairman Stanley Fischer pointed directly at the August Employment Situation Report as a factor in their rate decision as we are “reasonably close to what is thought of as full employment.” That report will be released on September 2 and the last three jobs reports have shown growth.

However, both Yellen and Fischer were careful to caution that not all data is glowing, hence their reticence to raise rates. Friday gave us a good example: the Department of Commerce released an anemic GDP growth of 1.1 percent for the second quarter, which was slightly below the 1.2 percent expected by economists and far from the solid footing the Fed would like to raise rates. Even so, the futures markets are now pointing to the odds of a September rate hike at 30 percent and a hike before year-end at 60 percent.

Our Takeaways for the Week:

  • The Fed remains data dependent
  • As better economic news is issued the likelihood of a Fed rate hike increase