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Wall Street to Your Street
November Recap: One Step Closer to Fed Funds Rate Lift-Off
November 30, 2015 | Jeff Branstad, CFA, Investment Product Management
Recap for month ended Nov. 30, 2015.
Investors have discussed and debated the Federal Reserve’s rate hike plans throughout 2015 with the volume rising even louder in November. A strong jobs report and an upward revision to third-quarter U.S. GDP data helped build the case for a rate hike before the end of the year.
By the numbers
Market activity in November, as reflected in the most common market indexes we follow.
|Dow Jones Industrial Average1||0.7%||1.8%||10.0%|
|S&P 500® Index2||0.3%||3.0%||13.7%|
|Russell 2000® Index3||3.3%||0.6%||4.9%|
|MSCI EAFE Index4||-1.5%||1.0%||-4.5%|
|MSCI Emerging Markets Index5||-3.9%||-12.7%||-1.8%|
|Barclays U.S. Aggregate Bond Index6||-0.3%||0.9%||6.0%|
|Barclays 20+ Year Treasury Index7||-0.9%||-1.6%||27.5%|
|Barclays U.S. Corporate Investment Grade Index8||-0.2%||-0.1%||7.5%|
|Barclays U.S. High Yield Index9||-2.2%||-2.0%||2.5%|
|Barclays Municipal Bond Index10||0.4%||2.6%||9.1%|
|U.S. Treasury Yields||As of|
|3-Month U.S. Treasury Bill||0.22%||0.08%||0.04%|
|5-Year U.S. Treasury Bond||1.65%||1.52%||1.65%|
|10-Year U.S. Treasury Bond||2.21%||2.16%||2.17%|
|30-Year U.S. Treasury Bond||2.98%||2.93%||2.75%|
December lift-off looks more likely
An unexpectedly strong jobs report announced early in the month convinced many market watchers that the Fed will finally begin to raise the federal funds rate in December. The jobs report showed that 271,000 jobs were added in October, substantially higher than the expected rate of 183,000 new jobs. That was the largest new jobs number of 2015. At the same time, earlier jobs reports were also revised upward. The unemployment rate fell to 5.0%, the lowest it has been since April 2008. Not all parts of the unemployment picture are as rosy as the top-line number—broader measures that include people no longer looking for work and those that are working part-time but want to work full-time are still higher than usually seen at this stage of an economic expansion. Wage growth has been slow to materialize as well, but the latest report saw average hourly earnings jump by 2.5% from a year earlier. The participation rate is still well below prerecession levels, too, partly due to the increasing number of retiring baby boomers, but also because many discouraged workers have given up looking for jobs. Still, it’s hard to deny that employment factors are decidedly stronger now than they have been at any other time since the recession.
The case for raising rates in December got another boost from an upward revision to third-quarter U.S. GDP growth rates. The economy expanded at a faster pace than initial estimates suggested, advancing at a 2.1% rate instead of the 1.5% estimated growth rate first reported. An improved reading on inventory investment was largely responsible for the increase. However, corporate profits took a step back, falling by 3.2% since the previous quarter.
At the beginning of the month, the federal funds futures market was almost evenly split on whether or not a rate hike would occur before the end of the year. However, after the strong jobs report and improved GDP data, the futures market was projecting a nearly 80% chance of a rate hike in December. The Fed meets on Dec. 16, so the release of its statement after that meeting could finally help the bond market enter a new chapter. A potential benefit of the long lead time associated with this decision is that investors have had a lot of time to prepare, which could potentially help bond prices better absorb the impact of higher rates.
In their Market Commentary, Thrivent Asset Management leaders discuss the financial markets, the economy and their respective effects on investors. Writers’ opinions are their own and do not necessarily reflect that of Thrivent Financial. Forecasts, estimates and certain other information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. From time to time, to illustrate a point, they may make reference to asset classes or portfolios they oversee at a macro-economic level. They are not recommending the purchase of any individual security. Asset management services provided by Thrivent Asset Management, LLC, a wholly owned subsidiary of Thrivent Financial, the marketing name for Thrivent Financial for Lutherans.
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1 The Dow Jones Industrial Average is an index of 30 "blue chip" stocks traded in the U.S.
2 The S&P 500® Index is a widely followed index, and is composed of 500 widely held U.S. stocks.
3 The Russell 2000® Index measures performance of small-cap stocks.
4 The MSCI EAFE Index measures developed-economy stocks in Europe, Australasia and the Far East.
5 The MSCI Emerging Markets Index measures developing-economy stocks.
6 The Barclays U.S. Aggregate Bond Index measures performance of a wide variety of publicly traded bonds.
7 The Barclays 20+ Year Treasury Index measures performance of longer maturity treasury bonds.
8 The Barclays U.S. Corporate Investment Grade Index measures performance of the investment grade bond sector.
9 The Barclays High Yield Index measures performance of the high yield bond sector.
10 The Barclays Municipal Bond Index measures performance of the municipal bond sector.