However, for U.S. markets, a longer-term problem may be one closer to home. Russ explains.
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Both stocks and bonds fell last week. The key culprits in last week’s market action? As I write in my new weekly commentary, several factors are dampening investor sentiment.
The most obvious one is the evolving situation in Greece, likely to cause still more volatility this week.
An emerging bear market in China also hasn’t helped markets. But for U.S. investors, the more persistent headwind may be one closer to home: the Federal Reserve (Fed) and the virtual promise of higher rates.
In other words, U.S. markets are struggling largely on the realization that a rate hike is probable this fall.
While U.S. data continues to be mixed (durable goods and the Chicago Fed’s National Activity Index were both soft last week), most of the recent economic evidence suggests the U.S. has recovered from its first quarter economic contraction.
For instance, last week, both existing and new home sales exceeded expectations, and personal spending notched its strongest gain in six years.
The firmer tone to the data increases the odds of a rate hike before year’s end.
Indeed, Fed Governor Powell last week forecasted a hike as early as September, with an encore in December.
For equity investors, there are three key takeaways:
- Look closely at technology and other cyclical companies, which tend to hold up better during periods of rising interest rates.