US Economy Is On A Roll: What Investors Need To Know

  • Oct 04, 2018 AEST
  • Team Kalkine
US Economy Is On A Roll: What Investors Need To Know

The macro-economic data released on October 3, 2018 showed that the US economy is accelerating at a rapid pace lifting the hopes of the global investors. The robust momentum in the economy helped the US benchmark rates on the government bonds and, as a result, they reached a level which was not seen from the past seven years. But, the matter of concern is this could also cause an increase in the inflation. The yield on the 10-year treasury increased by 12 bps (basis points) on October 3, 2018 and stood at 3.18%. In fact, the benchmark US 10 year Treasury yield has been at a level which was not witnessed for the past seven years or so.

The chairman of Federal Reserve commented on the optimism of the US economy and termed the current state as “remarkably positive.” According to him, the current situation is likely to sustain for a certain period of time.

However, the strong economy could also prompt the Federal Reserve to increase the interest rates so that inflation can be kept under control which could disappoint the US President Donald Trump. The president does not support the Fed’s decision of increasing the interest rates as this could reduce the money flow in the economy which could impact the business and consumer confidence. Generally, when a rise in the interest rates is witnessed, it negatively impacts the broader equity markets as the debt products become more attractive to the market participants. S&P 500 initiated the day with the strong momentum and witnessed 0.6% increase but, ended the day with an increase of 0.1%, as at October 03, 2018. The strong momentum in the stocks of the financial sector was unable to offset the negative momentum in the consumer staples, utilities as well as real estate.  

As per the Institute for Supply Management, the US services sector witnessed the robust momentum in September 2018. In addition, the private sector in the United States helped the economy by offering more jobs than it was anticipated in the previous month. In a nutshell, the US economy is helped by the wage growth as well as by the services and manufacturing businesses which could lead to a rise in the interest rates.

After increasing the rates three times in 2018, investors need to prepare themselves for the fourth one in December 2018 meeting of the Federal Reserve. However, in 2019, the Fed might go for three rate hikes.

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