Key economic data to be a big deal for record-high US stocks
SAN FRANCISCO: Wall Street will fixate on a wave of US economic data next week, crested by payrolls data on Friday that could sway expectations about the timing of future interest rate hikes and spark volatility in record-high stock prices.
Fresh data about employment and consumer confidence could help investors solidify expecta- tions for a December interest rate hike from the US Federal Reserve, or lend weight to a minority of strategists predicting a rate rise as early as next month.
Fed Chair Janet Yellen said the case for a rate hike is strengthening, but she left open the timing of what would be the first increase since December 2015.
“She did put the market on notice that she’d like to raise rates, which means the payrolls data out on Friday is very important.
The wage component, length of the workweek and types of jobs, all are crucial in order to extrapolate to inflation,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
Following Yellen’s speech, pric- es for fed funds futures implied investors see roughly a 60 per cent chance of a December hike, up from just above 50 per cent on Thursday. Investors see chances of a September hike at 36 per cent, up from 21 per cent.
Almost a decade of ultra-low interest rates has helped propel stock prices to record highs, even as the economy expands at a lukewarm rate and US large-caps struggle with over a year of declining earnings.
Expectations for higher interest rates would likely continue a recent trend of investors selling high-dividend payers like utilities and telecoms, in favor of sectors tied to economic expansion like financials and industrials.
Underscoring the importance of the upcoming jobs report, Yellen pointed to a recent rebound in employment and said in her speech at a symposium in Jackson Hole, Wyoming that the Fed expects the economy to continue expanding.
The August jobs report is expected to show the US economy created 180,000 jobs this month after rising by 255,000 in July, according to a Reuters poll.