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Matt's Market Insights

August, 2016 Archives

The Illusion of Power

By Matthew Kerkhoff

 

All hail the mighty Federal Reserve, the setter of interest rates and gatekeeper of the economy.

 

I don’t think anyone would go so far as to explicitly say that, but it seems to be the underlying tone I hear from many investors, as well as the subject of many op-ed pieces written by economists and investment advisors.

 

In this low interest rate world, everyone wants to blame the central bank. Asset prices in a bubble? Blame the Fed. No return for savers? Blame the Fed. Low economic growth? Blame the Fed.

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The Schizophrenic Fed

By Matthew Kerkhoff

 

Central bank policy is center stage this week as the world turns its attention to Jackson Hole, Wyoming. The symposium hosted by the Kansas City Fed has become the prime venue for discussing monetary policy.

 

Federal Reserve Chairwoman Janet Yellen is set to deliver her speech on Friday, which will capture the attention of global markets.

 

Leading up to the event, Fed officials have been especially vocal and particularly unaligned. The rhetoric has caused more than a few Fed watchers to use the term “schizophrenic.”

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Wandering into the Stratosphere

By Matthew Kerkhoff

 

A year and a half ago, if you knew that corporate earnings were going to decline for the next 5 quarters, would you have expected stock prices to go up, or down?

 

I think almost unanimously, anyone asked that question would’ve said down. That includes myself. Yet now, with the S&P 500 about to lock in its 5th straight quarter of year-over-year earnings declines, the stock market is firing on all cylinders.

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Is This Why Stocks Keep Moving Higher?

By Matthew Kerkhoff

 

If you’re having trouble understanding why the stock market keeps heading higher, try having a BEER. At the very least, it’ll give you a different perspective on the relative valuations between stocks and bonds.

 

BEER is Wall Street parlance for the Bond Equity Earnings Yield Ratio. While that may sound like a mouthful, the concept is not too difficult to grasp. At its heart, this ratio compares the current yield on Treasury Bonds to the earnings yield of stocks.

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Weak Business Spending is Choking Economic Growth

By Matthew Kerkhoff

 

On Friday we learned that the economy grew at a measly 1.2% rate during the 2nd quarter, about half of what most economists were expecting. Worse, growth figures for the previous two quarters were lowered as well.

 

The economy now supposedly expanded at a 0.8% rate during the first quarter of 2016 (down from 1.1%), and at a 0.9% rate during the fourth quarter of 2015 (down from 1.4%). But here’s the kicker, this means that over the past year, the economy has only grown by 1.2%.

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