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Why is the Fed still hesitating to raise rates? Here are some possible answers:
Slowing Growth
According to the OECD Business Cycle Clock Composite of Leading Indicators (updated September 2015), the world's two largest economies, the United States and China, continue to head into a slowdown. (China Dark Green / U.S. Light Green):
The Economic Cycle Research Institute has a similar view of the U.S. economic slowdown:
"What most may not realize is that U.S. economic growth has actually been falling since the start of 2015. Year-over-year (yoy) growth in ECRI's U.S. Coincident Index, a broad measure of economic activity that includes GDP, employment, income and sales, has fallen to a one-and-a-half-year low." (Source: ECRI website, September 16, 2015)
The Conference Board agrees too. The Conference Board's leading economic index edged up 0.1% in August after a flat reading in July. "The U.S. LEI suggests economic growth will remain moderate into the New Year, with little reason to expect growth to pick up substantially," said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, in a statement. (Source: MarketWatch, September 18, 2015)
No Inflation
Excluding the financial crisis, the CPI annualized rate is at the lowest point in decades, with inflation coming in near the zero line. This, after trillions of dollars of printed money:
Weak Employment Growth?
"It's well known that a big reason the jobless rate has fallen is that so many have dropped out of the labor force, so the percentage of the population that's actually employed is more meaningful. The employment to population ratio for people without a high-school diploma has actually reversed the majority of its recessionary losses. But you might be surprised to know that the employment to population ratio for high school or college graduates -- eight out of nine American adults -- has not recovered any of its recessionary losses."
(Source: ECRI website, September 10, 2015)
Bottom-Line
With this backdrop, is it any wonder why the Fed did not raise interest rates last week? If conditions stay the same or worsen, will they be able raise rates next quarter? Next year?
Again, these are only some of the pieces of the puzzle. In this post-2008 financial world, it seems that it is now more prudent to be prepared for any outcome, not just the one you believe will happen. That's why tactical strategies make more sense now than they have in years.
There are extremely smart people arguing both sides of the interest rate dilemma. It is no longer enough to buy into a textbook explanation of what will happen if the Fed does "A" or if they do "B." The better approach is to be prepared for any outcome, and tactical strategies can help you do that.
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Disclosures
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The performance results shown include the reinvestment of dividends and other earnings. Comparison of the Optimus Advisory Group Programs to any other indices is for illustrative purposes only and the volatility of the indices used for comparison may be materially different from the volatility of the Optimus Advisory Group Programs due to varying degrees of diversification and/or other factors. Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. Optimus Advisory Group does not make any representation that the Optimus Advisory Group Programs will or are likely to achieve returns similar to those shown in the performance results in this presentation. Optimus Advisory Group reserves the right to trade different funds within their models.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance will be profitable, or equal to any corresponding historical index. The S&P 500 Composite Index (the "S&P") is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor's chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The historical performance results of the S&P (and those of all indices) do not reflect the deduction of transaction and custodial charges, nor the deduction of an investment management fee, the incurrence of which would have the effect of decreasing indicated historical performance results. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices and index funds used as proxies for indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual client or prospective client in determining whether the performance of the Optimus' portfolio meets, or continues to meet, his/her investment objective(s). It should not be assumed that any Optimus portfolio holdings will correspond directly to any such comparative index.
Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investment strategies devised or undertaken by Optimus Advisory Group) will be profitable for a client's or prospective client's portfolio. All performance results have been compiled solely by Optimus Advisory Group and have not been independently verified.
The Optimus performance results do not reflect the impact of taxes.
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