Last week, as we reported, the Chair of the Federal Reserve, Janet Yellen, let it be known that she was worried about “potential dangers” due to her belief that stock valuations were “generally quite high”.
The immediate reaction to this opinion seems to have ranged mostly from a feeling of annoyance to a reaction of denial on the part of many of the commentators who specialise in equities. But they might just be missing the real significance of the remarks. Janet Yellen is well-known to take her duties to retail investors seriously. She has on many occasions commented on the inequality that she sees in wealth in the USA. At the same time she has the responsibility of helping to decide when core interest rates will rise, an event that is calculated to put an end, at least for a while, to the long-running bull market that the Dow Jones and Nasdaq have been enjoying. A great many of the people who are invested in these markets are the very citizens that Yellen is concerned about.
Therefore, the real significance of the comments about equity valuations last week might be nothing less than an indication that rate rises could be on the way, and sooner rather than later.
Non-Farm Payrolls back near trend
Friday’s Non-Farm Payroll figures got a mixed reaction from the markets when they were released on Friday. They were not blow-out numbers, which the market could get into a tizzy about but, at 223k new jobs, neither were they anything to be sneezed at. The fact of the matter is that anything over 200k is respectable and, as can be seen from the chart above, brings the monthly NFP figures back very close to trend.
This is yet another indicator that a series of rises in interest rates in the US is coming ever closer.