Economy vs. Fed Rate Hikes

By: Chris Ciovacco | Thu, Aug 28, 2014
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GDP vs RATES


Confusion Continues

The bad news is markets tend to get jittery when the Fed is preparing for a new interest rate cycle. The good news is the primary reason the Fed is contemplating raising interest rates is a strengthening U.S. economy. The question in the short run is:

Will the economy be strong enough to offset the negative impact of higher rates?

The odds of the answer being "yes" increased Thursday. From Reuters:

Gross domestic product expanded at a 4.2 percent annual rate instead of the previously reported 4.0 percent pace, the Commerce Department said on Thursday. Both business spending and exports were revised higher, while a buildup in business inventories was smaller than previously estimated - a mix of growth that provides a stronger underpinning for the remainder of the year.


Investment Implications - The Weight Of The Evidence

As of Thursday's close, the S&P 500 was up 8 points for the week. Therefore, despite some hesitation near the overly-talked-about S&P 500 level of 2000, the bigger picture has improved this week. We continue to hold a mix of U.S. stocks (SPY), leading sectors, such as healthcare (XLV), and a relatively small complimentary stake in bonds (TLT). Friday's economic calendar tells us to keep an open mind about how stocks close out the week:

  • European Inflation Data
  • Personal Income and Outlays
  • Chicago PMI
  • Consumer Sentiment

  • Friday's Sleeper?

    Since it could impact the European Central Bank's next move, we should not overlook Friday morning's report on European prices. From MarketWatch:

    The euro-zone consumer-price index due Friday morning is not only expected to come in at a multi-year low, but could also hold the key for future monetary easing from the European Central Bank. ECB President Mario Draghi already hinted last Friday that full-on asset purchases could be in store if the euro-zone doesn't move out of the low-inflation danger zone.

    Levels A, B, C, and D on the chart of the S&P 500 below may attract buyers if Friday's data brings out the bears.

    $SPX S&P 500 Large Cap Index INDX

     


     

    Chris Ciovacco

    Author: Chris Ciovacco

    Chris Ciovacco
    Ciovacco Capital Management

    Chris Ciovacco

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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    TRUE MONEY SUPPLY

    Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
    austrian-money-supply/