Markets Love Clarity and That’s What They Got

Jeffrey Roach:

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with an update on what's new in the macro landscape. And a call to action for investors. First, yields higher as growth set to continue. One of the reasons bond yields have risen in recent days is growth appears stable and stronger than anticipated. This chart shows that despite the Fed's cut in the target range of the federal funds rate in the last two meetings, bond yields actually went up. As I unpack that for you, let me remind you that market forces are more powerful than central bankers. So if inflation expectations increase and well-heeled millennials keep spending, investors should expect some upward pressure on market rates. Second, machines cannot fully replace humans. Amid the buzz for machine learning and artificial intelligence, human ingenuity and engaging personality are priceless. But even if you don't have the personality, remember that the job market evolves so much that according to research from MIT's Shaping the Future of Work Initiative, we know around 60% of all jobs that people do in the U.S. today didn't exist in the 1940s.

Jeffrey Roach:

That's roughly two generations ago. So AI could turn out to be a job creator, not a job killer like the technological advancements were of the previous decades. Demographers believe that without a structural change in the workforce, the U.S. and other rich countries could actually run out of workers before they run out of jobs. Third, expect some head fakes in upcoming inflation data. We could see some upticks in the Fed's preferred inflation metric, that PCE price deflator, but overall inflation should remain contained. This is noteworthy because nagging inflation could change the Fed's rate cutting cadence, and markets will have to adjust to yields staying higher for longer. So what does this mean for markets, especially after a lively presidential election cycle? Well, just a reminder, markets love clarity, and they were granted exactly that in a convincing way following this election cycle. These events will take time to digest and one single day should not be taken as a definite precursor to the future. However, the idea that the markets can now work without the burden of uncertainty should be welcomed by all investors. That's all for now. If you want more insights on global market trends, follow us on social media and take care.