Show Me a Sign


by Jason Norris, CFA Executive Vice President of Research

With today’s jobs number showing a monthly gain of 151,000, it didn’t tip the scales much regarding a Federal Reserve rate hike this year. This number was below expectations of 180,000; however, it was still viewed as solid growth. Wage growth remained a steady 2.4 percent, slightly below last month. The August jobs report number regularly gets revised higher. The last six August jobs reports have been revised higher by a median of 65,000. Therefore, this number could be closer to 200,000 when all is said and done. Either way, we don’t think this changes the view of the Fed, and the market expectations didn’t change much as well. According to Bloomberg, there was a 34 percent change of a hike in September which has shifted down a bit to 30 percent. December still remains at a probability of 60 percent.

Calm the Fire

Alan Greenspan coined the term, “Goldilocks economy” in the late 1990s, which indicated that economic expansion was not too hot, nor too cold. While we would argue that the U.S. economic growth may only be lukewarm, it isn’t cold enough for concerns of a recession. This predicament has left the Fed in a bind, where it seems they will be very slow to move rates higher. As bond and stock markets digest this, volatility has been greatly reduced. For the last eight weeks, the yield on the 10-year Treasury has been trading in a tight range between 1.5 percent and 1.6 percent. Also, equity market volatility has been muted the last several months. In the first 31 trading days of 2016, stocks moved up or down over 1 percent on 20 of those days. Since then, we’ve had 139 trading days and only seen a 1-percent move 19 times, with nothing in the last two months. Historically, stocks will move over a percent 25 percent of the time, as seen in the chart below.


Historically, September is the worst month for stocks, so there is the potential for increased volatility, thus we don’t want to get too complacent. However, if earnings continue to improve in the second half of the year and interest rates stay low, we believe we will see a steady grind higher in stock prices.

Our Takeaways for the Week

  • The U.S. job market is in Goldilocks mode
  • A steady U.S. economy and low interest will lead to higher equity prices