Markets "In a Nutshell" for October 9, 2018Oct 09, 2018
Investment Week at a Glance
Stocks declined last week. The Dow Jones Industrial average lost 0.04% while the S&P 500 was down 0.98%. The New York Stock Exchange Composite (2,000 stocks) dropped 0.98%. The “average investor’s index” (Value Line index) fell 2.4% and foreign stocks (DJ Global ex U.S.) dropped 2.6%. Bond yields were up as the 10 year Treasury ended at 3.23%. (Data sources: Barron’s Financial, Wall Street Journal)
Unemployment lowest in 49 years
The Labor Dept. reported that the unemployment rate dropped to 3.7% in September, the lowest rate since 1969. And as more evidence of this record long economic expansion, payrolls expanded by 134,000 in September. The jobs growth in September marked the 96th straight month of job gains. With inflation relatively low and economic growth humming along, it looks to be some time before a recession takes place.
Bond yields highest since 2011
The 10 year U.S.Treasury Bond yield (the annual rate of interest) hit 3.23% last week, the highest level since 2011. Higher rates are good for savers who have long since been starved for reasonable rates of interest. The debate rages on whether higher rates are bad or good for stocks. Those who say that rising rates are good point that rising rates usually mean stronger economic growth which can mean increasing corporate profits and higher stock prices. Those who argue bad say that higher rates strangle credit and the economy with less borrowing for things like homes and cars.
How to protect against rising rates
Bonds have an inverse relationship with interest rates (meaning higher rates mean declining bond prices and vice-versa). So if you are a bond investor how do you protect your investments from rising rates? What we are doing for our investors is a number of things. One is to build a ladder of individual bonds/cd’s. Another is investing in bonds that rise with rates such as floating rate bonds.
Which is bigger, the U.S. stock market or the U.S. bond market?...Answer is below…
Have a good week!
Answer to quiz:
The size of the U.S. bond market is $42 trillion while the U.S. stock market is $32 trillion.