Home About Archives RSS Feed

@theMarket: A Tale of Two Interest Rates

By Bill SchmickiBerkshires Staff

Ahead of the Labor Day weekend, investors had little to do but bet on how strong or weak the unemployment number would be. It turned out to be weaker than expected and the markets rallied.

Yes, we are once again in a "bad news is good news environment." Weaker economic data means the chances of the Federal Reserve Bank raising interest rates at the September meeting is diminished. That means lower rates for longer, which equals higher prices for stocks, bonds, and commodities. None of the above disappointed on Friday.

Investors should take the action in the markets (both up and down) with a grain of salt. The real market moves normally begin after the unofficial end of summer, Labor Day. We will have to wait until then before identifying real trends in the markets.

It has been almost 40 days since the stock indexes have experienced a one percent move. That hasn't happened since 2007.  The pros are expecting a big move one way or another. The markets are coiled but the problem is which way will they move? But don't look at stocks for the key. It is in the bond market where we may find clues to the next move.

What is the bond market saying about the chances of a rate hike in September? Traders are giving a hike less than 50 percent. So unless that changes, it remains a plus for a stock market advance. But is a rate hike really what is driving the bond market?

Sure, the central bank can raise the level of interest rates on short-term bonds, but they have little control over what really matters to the economy and that is long-term interest rates.

Ten- and 30-year U.S. Treasury interest rates are controlled by the market, not the Fed. If long rates stay down, it is good for the economy and good for the stock market. If they rise, then the reverse is true. And it is here that the plot thickens.

The fate and direction of our long-term bonds are highly dependent on what happens in the global fixed income markets. All investors seek higher yield (along with safety). The country that provides the best deal gets the lion-share of demand for fixed income investments. Because our two main competitors in that market (Japan and the European Union) are offering negative rates of interest, demand for U. S. bonds have been highly popular among global investors.

What's not to like. You get to own the safest bonds in the world and get 2.9 percent (in the case of 30-year treasuries) while other countries are giving you zippo for their bonds. How long can that continue? Until the European Central Bank and the Bank of Japan decide to change their monetary policies.

The European Central Bank will meet on Sept. 8 and the Bank of Japan on Sept. 21. All indications are that neither central bank has any plans on changing their stimulus policies any time soon. In the case of Japan, they may actually increase their stimulus. If that is the case, we can look to the U.S. markets as a place you want to be invested between now and at least the end of the year.

Now that does not mean that we are immune to market declines. In fact, we are overdue for one, but it will be a passing event and nothing to get worried about if and when it comes. Have a great Labor Day!

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Candidates Sought for Vacant North Adams School Committee Seat
ProAdams announces 2025 Holiday Home Decorating Contest
Toys for Tots Bringing Presents to Thousands of Kids This Year
BHS Recognized for Digital Health Achievement
Multiple Fire Companies Battling Motel Blaze on Route 7
OLLI at BCC Presents 'Transformative Spaces: Building a New Museum'
Pittsfield's Department of Community Development Launches Public Survey
Arace & Rice, CPA Opens in Pittsfield
Pittsfield Middle School Restructuring to Alter Bus, Bell Times
Greylock Glen Outdoor Center Focuses on Mindful Growth After Busy Fall Season
 
 


Categories:
@theMarket (559)
Independent Investor (452)
Retired Investor (270)
Archives:
December 2025 (2)
December 2024 (7)
November 2025 (8)
October 2025 (10)
September 2025 (6)
August 2025 (8)
July 2025 (9)
June 2025 (8)
May 2025 (10)
April 2025 (8)
March 2025 (8)
February 2025 (8)
January 2025 (8)
Tags:
Jobs Retirement Currency Taxes Mortgages Congress Election Deficit Energy Wall Street Housing Japan Interest Rates Federal Reserve Fiscal Cliff Debt Oil Greece Bailout Markets Selloff Stock Market Stocks Metals Pullback Recession Europe Stimulus Rally Commodities Banks Euro Economy Crisis Debt Ceiling
Popular Entries:
The Retired Investor: The Hawks Return
The Retired Investor: Has Labor Found Its Mojo?
The Retired Investor: Climate Change Is Costing Billions
The Retired Investor: Time to Hire an Investment Adviser?
The Retired Investor: Crypto Crashes (Again)
The Retired Investor: My Dog's Medical Bills Are Higher Than Mine
The Retired Investor: Food, Famine, and Global Unrest
The Retired Investor: Holiday Spending Expected to Stay Strong
The Retired Investor: U.S. Shale Producers Can't Rescue Us
The Retired Investor: Investors Should Take a Deep Breath
Recent Entries:
@theMarket: All Eyes Await The Fed
The Retired Investor: Cruises Are In And Not Just For Baby Boomers
@theMarket: Investors Gave Thanks for Market Gains
The Retired Investor: Venezuela's Oil Wealth Is s Tempting Target.
@theMarket: Nvidia's Earnings Could Not Save the AI trade
The Retired Investor: Return of American Gunboat Diplomacy
@theMarket: What Will Resumption of Economic Data Mean for Markets?
The Retired Investor: Thanksgiving Meal Will Be Cheaper This Year
@theMarket: November Profit-taking Surprise
The Retired Investor: Trump's Tariffs and the Holidays