The Federal Reserve concluded the October FOMC meeting by announcing that there would be no rate hike. With rates remaining low, investors should be happy. However, stocks that should be climbing, like Amazon (AMZN) and Alphabet Inc. (GOOG + GOOGL), are having a hard time in the market. Today, we’ll discuss why these stocks are having a hard time and what we can expect to see from the US market as a whole moving forward.
Why Stocks Are Having An Adverse Reaction To The News
Low interest rates are generally a great thing for investors. In fact, the historically low Federal Reserve interest rate is largely what has fueled the bull market that we’ve seen for so many years. This is because when interest rates are low, consumers spend less money on interest, leaving more money available for spending on products and services. This lends a hand to corporate earnings and takes some of the risk out of investing. It’s not the fact that interest rates are low that’s putting resistance on the market; instead, it’s why interest rates are remaining low that’s concerning investors.
The reality here is that interest rates remain low because the Federal Reserve doesn’t believe that the US economy is strong enough to handle the impact of higher interest rates in a positive way. This becomes concerning for investors because under negative economic conditions, regardless of interest rates, consumers spend less money. Here are the economic factors that are causing concern:
- Consumer Spending – Consumer spending accounts for a large part of the United States gross domestic product, and throughout 2015 consumer spending has been growing at a snail’s pace. Not only does this weigh heavy on the economy, it weighs heavy on corporate earnings and causes quite a bit of concern for investors.
- Jobs – US jobs growth was doing relatively well at the beginning of the year. However, this figure has started to plummet recently. In the United States, positive jobs growth is considered to be anything over 200,000 jobs per month. In the months of August and September, the US missed this figure by a wide margin, insinuating that corporate sales are declining and the economy is struggling.
- New Home Sales – When consumers are happy with the state of the economy, we tend to see strong growth in new home sales. After all, consumers aren’t going to make such a large decision if they are not absolutely positive that they will be able to maintain the obligations associated with the decision for the long run. Unfortunately, new home sales in the United States have begun to fall flat! This creates even more concern for investors.
While we are facing an economic downturn in the United States, investors are also concerned with global economic growth. The reality is that many companies in the United States, including Coca Cola (KO), make the vast majority of their money over seas. With dwindling economic conditions abroad, there’s no doubt that the economy in the United States will feel the pain as well. Unfortunately, conditions in China, Europe, Japan, Brazil, and several other regions simply don’t seem to be getting better any time soon.
What We Can Expect To See Moving Forward
Unfortunately, I’m not expecting to see much positivity out of the market throughout the rest of the year. While there will be good days, based on the economic data mentioned above, I believe that there will be more bad days in the market than there will be good. So, hold onto your hats, it’s going to be a bumpy ride.
What Do You Think?
Where do you think US markets are headed and why? Let us know in the comments below!
[Image Courtesy of Wikipedia]