Four members of the Fed spoke within the last two days, including the three members who spoke yesterday. The biggest voice was that of Fed Chair Janet Yellen, who wasted no time spooking the market with her assessment that stated equity valuations are "quite high.” She attempted to temper those comments by saying that in comparison to bonds and other safe assets, stocks were not so overvalued. However, the damage was already done (see circle). There was a slight bounce into the close. I suspect it was the above-average experienced investors, but an already tense week just got a lot more tensed.
So, the market was heading higher in spite of that horrific ADP jobs report when Janet Yellen shared her opinion on the stock market. For those who think it was an innocuous slip of the tongue, don't forget that she's done this before. Her salvo at biotechnology stocks sent the sector reeling, only to see it roar back with a vengeance.
It's too bad the Fed's handiwork on the economy hasn’t been able to do the same thing...make it roar back with a vengeance.
Yellen wasn’t the only Fed official speaking yesterday. Dennis Lockhart made two comments I found interesting. The Fed has a “foreshortened” time frame for analyzing data and there’s not going to be a rate hike until consumer spending surges. My first thought was, “What’s this dude smoking?” A surge of purchases from consumer spending is farfetched at this point. Heck, when gas was freefalling, people didn't rush out to spend their newfound wealth. There's no way they'll give their local mall the bum's rush on higher gas prices...unless or until their wages spike.
U.S. retail sales on a year-over-year basis have been miserable…this is the chart Lockhart thinks will miraculously see a surge? How would that happen?
Admittedly, we are seeing signs of a higher-wage growth, including the 5% increase in unit labor cost as the so-called productivity miracle. It has run its course for the moment. (Productivity is a euphemism for firing people and replacing them with as much machinery and technology as possible. After cutting to the bone, there will be a need for people to wipe down the machines and occasionally reboot the computers.)
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By the way, one Fed official seems to be watching all the action without rose-colored glasses or a need to hype the work of the Fed. Fed Reserve Bank of Minneapolis President Narayana Kocherlakota points to "soft" economic data in the first three months of the year as a reason not to raise rates yet.
It’s pretty clear and simple.
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