Important Days Ahead

We have reached that time of the month where we will begin to get some important news which will determine the speed of future interest rate hikes in the weeks and months ahead.

On Friday of this week we get the important employment situation report.  Estimates for job creation are for between 140,000 and 210,000 new jobs with an unemployment rate of 4.3% to 4.5% (the current rate is 4.4%).  While we call this data “important” one has to only look back 6 months to see that the forecasters do a poor job of forecasting and the 10 year treasury yield may move initially higher or lower, but in the end it continues to drift lower.  Maybe we should say the “unimportant” employment situation report.  Maybe the important part of the report is the rate of increase in average hourly wages since this will feed into inflation eventually.  On the other hand if the employment report came in surprisingly weak it could deter further Fed action for the time being.

This leads to the biggest potential market mover for the month of June and that is the Fed FOMC meeting which begins on Tuesday, June 13th.  The expectations are that the Fed will hike the Fed Funds rate by another 1/4%.  Currently the rate is set at 3/4% to 1% and a hike would put the rate at a range of 1% to 1.25%.  Remember that this rate affects short term rates, but may have very little affect on longer term rates–these rates will be set “by the marketplace”.  If there is a hike we would expect just a tiny short term affect on preferred stocks and baby bonds.  With the average share price darned near back to all time highs we could see a quarter or 50 cent hit to prices, but more than likely prices will start to tick higher within a week of any interest rate hike.

So we continue to move as we have for literally the last couple of years.  We stay leaning to short/medium duration term preferreds or baby bonds with some select fixed to floating rate preferreds possibly tossed in.  It is difficult to stay the course, but for ultra conservative folks like us it will serve us well in the end.