The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

What the Heck Is Going On Out There?

On December 5th, 2016, posted in: Uncategorized by

stock marketWhat happened to the recession? The question was posed to me the day after the Dow Jones Industrial (i.e., the stock market) broke into new territory, 19,000 +. All indices set records. As Vince Lombardi might have asked, “What the heck is going on out there?”

True enough, it wasn’t but a few weeks before the election and the subsequent stock market’s meteoric rise that discussion was all around whether or not our country was poised for a recession. Economists were casting votes on both sides of the argument, giving credence to the idea that in many camps, we were, in fact, not far from a problem. Suddenly, not a word has been spoken. It does beg the question: What happened to a recession?

One contributor is that investors love certainty. We now know our future president. Right, wrong or indifferent to all the other mitigating factors of the election results, we now have certainty. Investors love it and move accordingly, especially given that the Senate and House of Representatives align with the Presidency. Whether a D or an R is your voting preference, not having a divided Congress usually means that the propensity to get things done is much greater.

Contrary to the stock market increase is that market investors do not love interest rate hikes. The Fed has a 100% probability that rates will go up in December — so what’s the rub?  Investors like certainty more than they disdain interest rate increases. My guess is that the interest rate hike has been baked into the flurry of activity already.

Why the rate hike? All of the key indicators that the Fed focuses on are moving in the right direction, including some fiscal policy speculation that they’ve been hoping for (actually begging for) over many years. Housing, consumer spending, inflation, employment and wage hikes are the meat and potatoes of measurements, and they’re all pointed in the right direction, too. Good news again for investors.

A view of what might happen with regulations, while totally speculative, is exciting to the banking community. Rate hikes, lesser regulation and a churning economy add up to some very active and happy investors, especially in bank stocks. When there are signs of fiscal stimulus, the elimination of rock-bottom interest rates, the quelling of tougher regulation and the disappearance of weak economic growth, the market heats up.

Will it last? Is it still speculative? What are the new “black swans” to turn this around? Questions abound, but for now the word “recession” has been eliminated as a top-of-mind discussion. More to come. You may want to get your money out from under your mattress.

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