Recent economic data has been consistently trending toward a period of gradual gains. Job numbers have been respectable although wage gains haven’t been. First time unemployment claims are down in the most recent report and durable goods orders for July came in stronger than expected at 4.4%, the largest gain in six months. Accordingly, or paradoxically, Wall Street retreats. Or at least doesn’t rally in the traditional sense. It’s interesting to watch because markets here and abroad are reacting to economic news in a familiar fashion. When solid economic data is reported, the fear of higher rates seems to overshadow any bull market.

 

This cycle is something we’ve witnessed here before and historically markets react differently to economic reports. Somehow the fear of raising rates by 0.25-0.50% shakes investor confidence to the point that bonds sound attractive in the sense that at least bonds won’t lose you money. We’ve been in such a low-rate environment for such an extended period of time we’re not used to the Fed Funds rate being effectively near zero when the average Fed Funds rate has been closer to 6.00% for the past 45 years.* The Fed apparently wields a bigger stick than GDP, Durable Goods and Non-Farm Payrolls.

That might help us look a little further to see what our economy might be doing a year from now. If indeed good economic data results in stocks falling, low stock prices mean corporate growth is stymied and we might very well be in the same situation in August 2017. The last time the Fed raised rates was last December but that was only the first increase in nearly a decade. We’ve said it here before, good economic news apparently doesn’t sit very well with some investors.

*Tradingeconomics.com “United States Fed Funds Rate”