Saturday, September 5, 2015

Dow registers another triple-digit loss

Dow registers another triple-digit loss

Growing fears of interest-rate hike before end of year


This time what drove the stock market down was not fears over China’s stock market crashing, but, ironically, a better-than-expected unemployment report. Investors interpreted the report as evidence for the argument the U.S. economy is strengthening, making it more likely that the Federal Reserve will raise interest rates at the upcoming Federal Open Market Meeting scheduled for Sept. 17-18.
The Dow’s negative turn Friday dimmed investors’ hopes that a rally earlier this week meant global markets were stabilizing after a selloff triggered by China’s decision Aug. 11 to devalue the yuan by 3 percent.
Now, what looms over the three-day Labor Day weekend is concern that investors wanting to cut losses will flood the market with sell orders when trading resumes, causing a “Black Tuesday.”
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On Friday, the Bureau of Labor Statistics reported total non-farm payroll employment increased by 173,000 in August, reducing the unemployment rate to 5.1 percent, the lowest level since 2008.
The widely followed financial blog ZeroHedge.com characterized the jobs data as “good enough,” noting the Bureau of Labor Statistics report “sparked a stock slump as September rate hike odds jumped.” It observed that following the “headlines” positive payroll report, the probability of a Fed decision to hike interest rates in September – as measured by futures contracts on Federal Funds, the interest rate at which depository institutions lend balances to each other overnight – jumped up to 34 percent, with a rate hike in December now considered 60 percent likely.
Had the jobs report lagged behind analysts’ expectations, the stock market Friday most likely would have continued the Wednesday and Thursday rally, with investors concluding the odds of a rate hike would have lowered.
An interest-rate hike likely would dampen economic growth, suggesting to the Federal Reserve that a rate hike now would not be necessary, because a slowing economy would be unlikely to generate the 2 percent inflation the Fed fears.
For consumers, the stock market selloff Friday and the growing conviction on Wall Street that interest rates will go up before the end of the year suggests the economy may be re-entering the prolonged recession that began at the end of George W. Bush’s second term in office.
Rising interest rates will increase the cost to consumers of finance charges, causing increased monthly mortgage payments on Adjustable Rate Mortgages, or ARMs, plus higher monthly payments to finance a wide range of purchases from automobiles to washing machines.
Record 94 million not working but not ‘unemployed’
The perception that the economy may be strengthening enough to cause inflation seems unrealistic in view of the Bureau of Labor Statistics report on Friday that a record 94 million Americans are not in the labor force.
Labor force participation remained at 62.6 percent, a 38-year low, dating back to 1977, when the rate dropped to 62.4 percent.
Those not in the labor force are not considered “unemployed,” according to BLS statistical methodologies, because the “unemployed” are considered to be still looking for work, but unable to find it. Meanwhile, those “out of the labor force” are those who have become so discouraged with trying to find a job that they have given up looking for work.
Adding the 8.162 million the BLS considers “unemployed” to the 93,707 million it considers “not in the labor force” amounts to 101,869 million Americans who were not working in August 2015.
The BLS report Friday also found that 56.253 million women, ages 16 and older, were not participating in the workforce in August.
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http://www.wnd.com/2015/09/dow-registers-another-triple-digit-loss/
 

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