Eye on September Jobs | Investors Edge 9-24-21

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: China and Fed in Focus

Stocks experienced their worst day since May on Monday with the Dow falling 900 points as investors worried about the meltdown of the Chinese real estate company Evergrande.

The fear rippled around the world as many speculated whether or not the credit issues in China could spark a contagion similar to the financial crisis of 2008 – to be clear, we DO NOT share that level of concern

The next item on investors’ list of worries was the potential for the Federal Reserve to announce the reduction (or tapering) of its bond buying program – something that many feel has helped to keep markets on the rise.

While the Fed stated their close to making the decision to taper, they stopped short of actually making that decision, and the markets rebounded nicely from their pullback earlier in the week.

Featured Insight: Beware the Yield Quoted on Bond Funds

It’s very challenging these days to find conservative investments (that is, investments that offer a strong degree of stability of principal) that also offer much in the way of return.

Most CD rates are well under 1% currently, and the 10-year Treasury note, which carries some duration risk, meaning you could lose money if you don’t hold it for 10 years, offers a yield of roughly 1.4%. Those rates of return don’t even come close to compensating investors for the current rates of inflation they are experiencing.

Folks are understandably attracted to investments that appear to offer higher yields while also offering the prospect of relative stability, and there are a lot of bond mutual funds that quote yields well above 2% – still not great, but at least better than many other interest bearing instruments.

Don’t be fooled. While the current yield may in fact appear attractive, many of the bonds in these portfolios trade at substantial premiums, and will therefore lose value over time. You might get 3% on interest, but lose 2% of your principal in the process, ending up with the same measly 1% offered by other fixed income investments.

Looking Ahead: Eye on September Jobs

Jobs reports are kind of like elections, every one is billed as the most important one in our lifetime – at least in economic circles.

The one coming up – the September jobs report to be released on Friday, October 8th – will actually likely be the most important jobs report we’ve received in quite some time.

This is for two reasons:

1. This will be the first jobs report since the end of the supplemental unemployment benefits at the beginning of September; so it will be interesting to see if there is a surge of new entrants back into the labor market, something that many employers have been hoping for.

2. This jobs report has the potential to put the Fed in a box on their decision to taper their monthly bond purchases that I talked about previously; a strong report of more than 1,000,000 new jobs will nearly guarantee they will have to move forward with less monetary stimulus, and the stock market may not respond too kindly – at least in the short term.

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