The U.S. economy is back, chugging ahead with strong job gains and rising wages. People who had given up on ever finding a job decided to try their luck again. Dealers can barely keep the cars from flying off the lots. Factory machines are humming.
Good news, right?
Well, stock investors aren’t quite that predictable. The major U.S. stock indexes traded slightly lower for the week despite positive economic data—or perhaps because of it. Investors had been enjoying the so-so economic growth that persisted through much of this recovery. A week of unequivocally good news, on the other hand, increases the likelihood of higher interest rates in the future. “Investors think that the ideal scenario is for growth to be just sluggish enough for the Fed to stay on hold forever,” says Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
Also weighing on investors’ minds are the uncertain prospects for keeping Greece in the euro zone. Last week the country delayed some payments to creditors, and Greek leaders scrambled to come to a deal before they run out of money.
The Dow Jones Industrial Average dropped 161 points, or 0.9%, on the week, to 17,849.46, its third consecutive weekly decline. The Standard & Poor’s 500 index fell 15 points to 2092.83. The Nasdaq Composite was essentially flat, ending at 5068.46. The yield on 10-year Treasury notes jumped 0.305 percentage point on the week, to 2.402%, the largest gain since June 2013, in anticipation of rising interest rates.
Recent economic data are simply too strong for investors, or the Fed, to ignore. The U.S. economy added some 280,000 jobs in May, and average hourly wages rose 0.3%, above expectations for 0.2% growth. Cars sold at an annualized rate of 17.8 million in May, also well ahead of expectations, and the ISM manufacturing index likewise showed surprising strength.
(Source: Barrons Online)