June 8, 2016

The Markets

Everyone makes mistakes. Some people learn from them.

In a March 2016 white paper, James Montier and Philip Pilkington explored the Federal Reserve’s influence on the stock market. It was a process they’d begun in 2015 as they sought “…to understand why [their] forecast for the S&P 500 had been too pessimistic over the last two decades or so.”

Upon further examination, they realized the Fed’s influence on the Standard & Poor’s 500 Index (S&P 500) wasn’t caused by monetary policy decisions. Markets moved just because the committee was meeting. Investor sentiment was driving market action.

Last week, Federal Reserve Chair Janet Yellen commented, “It’s appropriate, and I’ve said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate.” Her comments did not inspire ‘animal spirits,’ which is how economist John Maynard Keynes described the emotions that motivate people to act.

At the end of the week, the Dow Jones and the S&P 500 were higher on solid economic data that included an upward revision of first quarter’s gross domestic product (GDP) growth rate. GDP is the value of all goods and services produced in the United States during a given period.

The next Fed meeting on interest rates is June 14-15.

Weekly Focus

“Little League baseball is a good thing because it keeps the parents off the street and the kids out of the house”
– Yogi Berra an American classic

Image is public domain.