Happily, it seems most of the country’s winter is finally over. Some economists expect that the end of the interminable cold weather will mean a pickup in the nation’s economy, but last week brought us a disappointing jobs report that has many concerned.
The jobs report showed that the U.S. added approximately 126,000 jobs in March, versus an expected number of 248,000. This needs to be taken with a grain of salt for a few reasons. First, like a lot of economic indicators, this number is disappointing because it’s not what was “expected.” Whether or not that expectation was reasonable is the question to ask. As you know, we at Cooper Capital, Inc. have been a bit more skeptical of the strength of the economic recovery than some of the reports, so this dip is less of a surprise to us. Secondly, the 126,000 is an estimate, and will be revised as harder numbers come in. When that happens, the stock market will react to the news a second time – whether they deem the news good or bad.
Speaking of the stock market, it’s important to mention that on occasion the logic behind big rallies and sell-offs is a bit backwards. On April 6 the market started with a sell-off in reaction to the poor jobs report, but turned around and rallied to triple digit gains when New York Federal Reserve President William Dudley indicated the Fed’s pace of rate hikes was likely to be “shallow” to help sustain the economic recovery. In short, the stock market rallied because the economy is in worse shape than was thought. The logic there is a little wonky. It’s like a child being pleased he’s not good enough to remove his training wheels.
While the Fed has made it clear they will proceed with caution, it has become obvious that they are, in fact, going to proceed. Rate hikes are coming, though we still expect that they will be small and slow. As such, we don’t find this very concerning for the majority of our inverse floating rate bonds. Any positions we see as exceptionally susceptible to damage from rising rates we will consider repositioning into more versatile investments. Though we don’t make selling bonds a habit, there are circumstances where we see greater benefit in moving funds into different positions. The potential for a drastic rise in interest rates is neither high nor looming, but as always we prefer to be ahead of the curve.
Despite the unexpectedly poor job market news last week, we continue to prepare for the anticipated rate increases. Indicators continue to be mixed, however, and worldwide economies are still struggling to find footing. Any move by the Fed will be, as we mentioned, slow and small. Meanwhile, we will continue to reap the benefits of low interest rates while positioning ourselves for coming changes.
This information is not intended to be used as the only basis for investment decisions, nor should it be construed as advice designed to meet your particular needs. You are advised to seek the advice of your financial adviser, legal or tax professional, prior to making any investment decision based on any specific information contained herein.
