So, when is the Federal Reserve going to increase
the rate for overnight borrowing?
It’s a question that has plagued bond investors
throughout the first quarter of 2015. In January, 10-year Treasury yields fell
as low as 1.6 percent. Early in March, they rose to about 2.2 percent before
falling back below 2.0 percent. The Financial
Times reported:
“Higher volatility is typical when markets are on
the cusp of a major turning point, and that has been the story so far this year
for U.S. Treasury debt… The year has already been characterized by big swings
in bond yields, which move inversely with prices… The lack of a clear signal
over when policy shifts towards a tightening phase may provide the central bank
with greater flexibility but does not quell the uncertainty facing investors.”
In recent weeks, Fed Chairwoman Janet Yellen
indicated the timing and pace of a rate change would be determined by economic
data. In general, the Fed considers a variety of employment and inflation
measures when determining policy. The Times
suggested bond markets have priced out the possibility of a June rate hike,
although several Federal Reserve officials recently said a June increase is
still under consideration.
U.S. stock markets reflected investor uncertainty
last week, too. Turmoil in the Middle East sparked concern an oil price
reversal could occur if supply is disrupted. In addition, investors’ worried
weaker-than-expected economic data might indicate U.S. economic growth was
slowing. The Commerce Department reported business investment spending plans
fell for the sixth straight month. That could result in reduced expectations
for first quarter growth, as well as delay a Fed rate increase. Stock markets
showed signs of life late in the week but finished lower.
Your grandparents and great-grandparents saw a lot of things change
during their lifetimes… During the 20th century, the first Nobel prizes
were awarded. The first license plates were issued. The first World Series was
played. Americans lived through McCarthyism, the Great Depression, and Orson
Welles’ ‘The War of the Worlds’ broadcast. Rock and roll became popular. The
first theme parks opened, NASA was formed, and Earth Day was introduced. Two
World Wars were fought as well as the Vietnam, Korean, and Gulf Wars. The Gold
Standard ended and the tech revolution arrived.
Many of these events had
immediate or eventual implications for industries – automobiles, sports,
communications, entertainment, defense, technology, and others – as well as
financial markets. The last decade has seen some significant changes, too. Here
are a few milestones we’ve witnessed:
2006: The United States population passed 300 million. (100 million
in 1915; 200 million in 1967)
2007: More babies were born in the United States than in any other
year in American history.
2008: Nielsen reported texting had become more popular than
calling.
2009: More people lived in urban areas than in rural areas across
the globe.
2010: This was the hottest year since 1880 – until the record was
broken again in 2014.
2011: Digital music sales overtook physical music sales for the
first time ever.
2012: China became the world’s biggest trading nation and largest
pork producer.
2013: The United States overtook the Saudis to become the world’s
biggest oil producer.
2014: China’s economy surpassed that of the United States.
2015: Millennials (born 1980 to late 1990s) became our nation’s
largest living generation.
When considering
investment opportunities, it can be helpful to ponder the ways in which
demographic and economic shifts may affect the future and what types of
businesses may benefit (or not benefit) from the changes.
“Friendship is
always a sweet responsibility, never an opportunity.”
--Khalil Gibran, Lebanese poet and writer
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