This Week’s Jobs Report May Determine Fed Timing

June 1, 2015

This Week’s Jobs Report May Determine Fed Timing Photo

Last week's market action was relatively uneventful as most markets have been trading in a tight range. The economic data released last week reinforced the sense that we are seeing moderate economic growth. First quarter Gross Domestic Product (GDP) was revised downward as expected -0.7% from 0.2%. The GDP data is very backward-looking at this point and shouldn't have an impact on the Fed's actions on interest rates. Two items to watch for any impact on trading going forward are the strengthening of the U.S. dollar versus the Euro and the continued brinksmanship between Greece and other Euro zone members.

This will be a busy week in terms of economic data with numerous key reports, including Personal Consumption Expenditures (PCE), Institute of Supply Management (ISM), and the May Employment Report. I expect this data will give a better picture of the timing of a Fed interest rate increase. Overall, my expectation is for the data to be stronger than consensus, supporting an increase in interest rates in September.

I expect the markets to become more volatile over the next few months leading up to the rate increase. It will be interesting to see if the old adage "Sell in May and go away" holds true this year for stocks. Look for any breakouts above 2140 on the S&P 500 to signal additional gains, while a drop below 2080 may indicate downside risk to 2000. For bonds, I expect rates to rise to new highs in yields (above 2.3%) on the 10-year Treasury over the next few weeks, from the current level of 2.1%.

Tags: Monday Morning O'Malley | Federal Reserve | Interest Rate | S&P 500 | 10-Year Treasury | Employment numbers

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