Dow Jones Industrial Average continues losing streak

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Bull and bear

Bull and bearAmid market uncertainty regarding the Fed’s interest rate policy, the broader US stock market continues its downward drift. For three weeks running, the Dow Jones Industrial Average has ended the week down. This should not be a surprise.

It appears that the US Federal Reserve has resigned itself to the fact that the historically low levels of US labor participation rate won’t improve anytime soon. Factoring in the huge number of Baby Boomers who have finally chosen to retire-after many years of extended work patterns-and the disturbing numbers of 25 to 54-year olds who are no longer looking for work, the Fed is concerned about this statistical labor shortage’s effect on US wage rates.

A shrunken labor pool will mean a short-term boon for holders of college degrees. Expect US jobs numbers to continue to improve. The downside to all this is that it puts lots of upward pressure on wages. As the smaller labor pool exerts stronger wage bargaining pressure, the increase in pay will put a lot more money in circulation. As more and more cash chase fewer and fewer goods, prices are under pressure to rise. This is not a nightmare scenario or wishful thinking-this happens like clockwork.

The scenario above is precisely why the Fed has been weighing boosting interest rates soon. It looks like it has hired of waiting and being ‘patient.’ The broader equities market is simply pricing in this inevitable decision as the US jobs market (and by extension, the broader US economy) shows no signs of slowing down. As the Fed tightens rates, expect the US dollar to keep zooming upwards.

2 COMMENTS

  1. And last week the headlines stated that the Dow Jones average was increasing due to a strengthening US dollar (No, I’m not making this up, I read the thing myself). Amazing what less than 7 days makes, yes? 😉

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