The markets recovered from last Friday’s selloff with the Dow gaining 107 points to 18,502. Trading volume was off significantly from Friday’s level and according to IBD the markets are now under pressure meaning that the rally, while not dead, has stalled and caution is advised.
Investors this week will focus on a wave of US economic data to include unemployment, factory activity and personal consumption. On Friday Fed Chair Janet Yellen said the case for a rate hike was strengthening but left open the exact timing of what would be the first rate hike since last December. Most gurus seem to think a December 2016 rate hike is in the cards but it could be sooner if economic data shows strength. Central banks around the globe are pushing policies that so far have failed to boost economic growth and thus are trying to get Yellen to go slow as they feel any US rate hike could hurt their efforts. Caught between weak global markets and a decent US economy Janet Yellen and the Federal Reserve board will have to walk a tight rope going forward.
The US economy grew at a tepid 1.1% pace in the 2nd quarter of 2016. Within the report data shows businesses (1/3 of the economy) are cutting spending on new equipment in part due to a strong dollar, increased regs, slowing exports and perhaps nervousness over the election. The US consumer (2/3’s of the economy) meanwhile is going strong as a tight labor market is pushing wages up and per capita disposable income has risen by a solid 7.7% (adjusted for inflation) since 2013. Consumption was up 0.3% last month making it the 4th month in a row of gains.
While the national economy grew at a 1.1% pace the state of Washington is tied for first place with a 3.9% gain in state GDP thanks in large part to strong construction activity. The other two states in first place are Arkansas and Oregon, which, by the way, just beat the Seattle Sounders 4-2 in soccer. (Ugh!) Now if they just had an NFL football team we could crush them like an Oregon grape under a hikers boot.