Don’t forget what markets are dependent upon…

After one of the most volatile weeks in recent memory, some much needed relief was produced for equity investors. Though the gains last week did not recover all that was lost, they did manage to bring a measure of euphoria back into play. But don’t read too much into one week’s market action.

The tape this morning suggests caution, as futures are pointing to early losses. Interest rates in the Treasury markets continue to climb while inflation data is showing consistent increases. Wages are getting a lot of notice. The divide between rising rates and strong economic data will continue to play out in both the equity and bond markets. A consensus on valuation will take time. Discount rates and implied forward rates will be revised over and over as new data is revealed and analyzed.

I’m keeping my eye on the Fed and how they manage normalization. Let’s trust that they can manage the process without putting too much pressure on real rates causing the US, and in turn the world economy, to lose its momentum. World economies are in sync for the first time in quite a while. A surprise by the Fed could change everything. In a world economy that is large and diverse, it belies the dependence we carry on the good work of a few central bankers.

LaSalle St. Investment Advisors, LLC
940 N. Industrial Dr.
Elmhurst, IL 60126