Last Wednesday, the Federal Reserve made it crystal clear that it won’t be raising rates in April. The Fed even gave the impression that it doesn’t know when it’ll be raising rates. While many on Wall Street are assuming that the Fed will raise rates later this year, I really don’t think that will be the case.
If the Fed raises interest rates, it would further strengthen the dollar and put even more pressure on commodity prices. That, in turn, would depress international sales and hurt corporate profits.
At home, the deflationary environment would curtail retail sales. In short, deflation is a real problem for the U.S. economy and financial markets. So, the Fed is under a lot of pressure to keep rates low.
After the Federal Open Market Committee (FOMC) made this announcement, Wall Street celebrated because a lot of people were prepared for an April rate increase. This was a relief rally from all of the tension that had been building up to the announcement.
As much as I like a positive Fed announcement, I wouldn’t whip out the noisemakers and party hats just yet.
Beyond the possibility of raised interest rates, here’s what investors should pay attention to this week:
Monday: Existing Home Sales. The National Association of Realtors will release its monthly report that measures sales of existing homes on the market. The report is a good indicator of activity in the housing sector. Aside from total sales, two other indicators are worth watching in this report: the inventory of homes for sale and the median price.
Tuesday: Consumer Price Index. The Labor Department will release this important report for October. The Consumer Price Index (CPI) is a measure of the price level of a fixed market basket of goods and services purchased by consumers. CPI is the most widely cited inflation indicator, and it is used to calculate cost-of-living adjustments for government programs and is the basis of COLAs for many private labor agreements, as well. It is the benchmark inflation index and a very important report that can move the market.
Tuesday: New Home Sales. The Commerce Department will release this report that indicates the level of new privately owned single-family houses sold and for sale last month. In addition to new home sales, the market monitors the number of homes for sale relative to the current sales pace. As the inventory changes, housing starts change.
Thursday: Initial Claims for Unemployment. The Labor Department produces this report that details initial jobless applications. The report provides an indicator of the direction of the economy, with increases or decreases in claims that signal slowing or accelerating job growth.
Friday: Fourth-Quarter GDP (Third Estimate). This is a significant report. The Commerce Department will release its advance estimate for Gross Domestic Product (GDP) numbers for the economy for the third quarter of 2014. This is the broadest measure of economic activity. This report can move the market up or down depending on the data. The broad components of GDP are: consumer spending (consumption), investment, net exports, government purchases and inventories. Consumer spending is by far the largest component, totaling roughly two-thirds of GDP.
Friday: University of Michigan’s Consumer Sentiment Index (Final). The University of Michigan index is almost identical to the Conference Board index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two sub-indices–expectations and current conditions. This index has increased its influence of late on Wall Street and has the ability to move the market up or down.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
