Committee members of the Federal Reserve forecast economic growth every year. Not surprisingly, traders place significant amounts of beliefs in those projections. After all, Fed quotes may impact monetary plan. Unfortunately, estimates for the last five years have been exceedingly rosy. Members of the board erroneously predicted robust expansion in the quarters ahead each and every year.
Time and again, though, the “recovery” ended up being rather slow. Granted, the Federal Reserve’s actions succeeded in suppressing interest rates, and ultra-low rates have added handsomely to commercial refinancing. Some might even argue that employment gains are directly attributable to Fed policy. Still, the Federal Reserve encouragement of borrowing and subsequent spending has led to the weakest post-recession period of growth since World War II.
What’s more, blaming every one of the economic contraction in the first quarter of 2014 on adverse weather conditions is irrational, if not disingenuous. Labor force participation is at levels reminiscent of late-’70s stagflation, while advancements in after-tax household income has been downright anemic. In a world of peculiar logic, though, substandard financial progress suggests that the Fed can do everything in its powers to persevere with the suppression of interest levels. Contained rates have been pushing people into riskier possessions for a long time. Therefore, the wonderful vibrations should carry on, right?
Profits at S&P 500 companies in the quarter increased a paltry 2% from this past year, in spite of forecasts for an 8.5% rise. Overall sales have been soft also. The fact that stocks keep right on climbing alarms those of us who believe stock prices cannot outshine actual sales and profits indefinitely. Either companies will need to begin selling a lot of products and services in a few months ahead … or the smart money is going to have a breather in resources recognized to be safer. Top 10 10 Stocks for 2014: Bunch on these explosive growth stocks and shares as quickly as you can!
Click here to get the very best 10 List – FREE! 1. Falling rates have never helped homebuilders. Throughout the current bull market, rate-sensitive home construction stocks have been beneficiaries of declining home loan costs. Until now. A 30-yr fixed mortgage rate has lowered 30 basis points in 2014, yet shares of SPDR S&P Homebuilders (XHB) have given up roughly 5% up to now. In fact, the average 30-year fixed today (4.2%) is less costly than the average from 10 months ago (4.5%), but XHB has made valuable little progress.
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2. A yen for your thoughts? The yen carry trade is a significant feature of global financing for the better part of 15 years. Investors borrow (or short) the low-yielding yen to invest in higher-yielding currencies or higher-appreciating resources. Indeed, it is a favorite method for institutional traders to improve capital.
On the flip aspect, however, the carry trade can have an unusually harsh side effect if the yen starts to go up in value. Institutions and hedge funds may quickly dump higher-yielding currencies and riskier resources to avoid paying back loans in the more expensive yen. If CurrencyShares Yen Trust (FXY) picks up more momentum in the few months ahead, it is difficult to assume the S&P 500 escaping unscathed.