The Impact of Near “Full Employment” on Investors

October 5, 2018

It’s been an interesting start to October. The Dow and S&P hit all-time highs, and we’ve seen the 10-year treasury reach its highest rates since 2011* – subsequently leading to a drop in major stock indices. Among numerous economic data announcements, the jobs report seems to be the headliner so far.

The jobs report showed wages rising by about 2.8 percent and the unemployment rate fell to 3.7 percent – a near 50-year low** and approaching “full employment.” Although many people will debate what it means to be at “full employment,” there’s no question the numbers are good. In my opinion, higher wages and low unemployment will likely be fuel for a fourth rate hike by the Fed before the end of the year.

What does all this mean to you? I believe interest rate hikes likely will lead to some price fluctuation in the bond markets. Higher rates aren’t necessarily bad, but when they affect the overall returns of what many people use as “safe money,” it can make people uneasy. I expect that we’ll see money starting to leave the stock markets and search for safer waters as yields continue to rise. If the market continues to set all-time highs, I expect people to start locking in gains in anticipation of a future market downturn. While I don’t foresee a major correction*** in the short-term, I understand why some investors would feel the need to lock in gains made over the last several years.

 

Blog by Andrew Gaskill, Financial Services Manager.

Sources:
*https://www.cnbc.com/2018/10/04/us-bonds-and-fixed-income-data-and-fed-remarks.html
**https://www.bloomberg.com/news/articles/2018-10-05/u-s-payrolls-and-wages-cool-while-jobless-rate-hits-48-year-low?srnd=premium
***https://www.investopedia.com/terms/c/correction.asp

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