The Intelligent Investor Newsletter – September 29, 2016


A bi-weekly publication from Consultiva Internacional, Inc. (Registered Investment Adviser)

Stock prices rose last week after the Federal Open Markets Committee (FOMC) announced that they would once again postpone raising interest rates. In our view, there were plenty of good reasons for the Federal Reserve to proceed with another rate hike; the labor market tightening, inflation approaching the 2.0% target and unemployment holding steady at low levels. Yet Chairwoman Janet Yellen and the Board of Governors voted to postpone doing so. By Yellen’s comments at the press conference, their reasons are a bit perplexing; “The fact that unemployment measures have been holding steady while the number of jobs has grown solidly shows that more people, presumably in response to better employment opportunities and higher wages, have started actively seeking and finding jobs. This is a very welcome development, both for the individuals involved and the nation as a whole. We continue to expect that labor market conditions will strengthen somewhat further over time.” Is Yellen right about stronger growth ahead for the U.S. economy?

Data from two of the biggest economic sectors can help paint a clearer picture. First, as reported by the Wall Street Journal, sales of new homes were down in August after surging the prior month. Purchases of new, single-family homes declined 7.6% compared to the prior month. On broader terms however, new-homes sales have been up YTD by 13.3% compared to the same period in 2015 (See Graph I). Second, the August report published by the Institute for Supply Management showed that economic activity in the manufacturing sector contracted in comparison to the previous month, while the overall economy grew for the 87th consecutive month. This is the first contraction since February 2016. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. It maybe that August was just a bump on a strengthening path for the U.S. economy, but the Federal Reserve adjusted its GDP outlook from 2% growth in June, to 1.8% growth in September over the next two years. So it remains to be seen if there’s a political motif behind the Fed’s decision, or if it’s a response to their pulse of the economy.

by Myrna Rivera, CIMA®
Founder & Chief Executive Officer

Graph I






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