Market Commentary – 1/8/16

U.S. interest rates are modestly lower this week after a brutal global sell-off in stocks. China’s economic troubles, the sharp decline in oil and other commodity prices, and the yield increases in junk bonds are all signals of deep fundamental problems. The stock markets took note of these issues this week with a violent sell-off.

Friday brought another jobs report, which blew past expectations. However, hourly earnings were unchanged while the unemployment rate held firm at 5%. The absence of wage inflation was credited for keeping bond yields from rising. With oil and other major commodities at multi-year lows and no sign of wage earning growth, it is hard to imagine bond yields rising much, even with the Federal Reserve’s recent increase in short-term rates.

With so much concern for the direction of the global economy, we remain biased toward floating interest rates at this time.