Fed Indicates September Tightening on Employment Gains

August 3, 2015

Fed Indicates September Tightening on Employment Gains Photo

The two key market moving news events of the last week were the Federal Reserve (Fed) meeting and the second quarter gross domestic product (GDP) report. The Fed indicated at its July meeting that labor market conditions continue to improve and their comments look to support an increase in interest rates at the September meeting. This is consistent with our team's expectation. I still expect a 0.25% increase in the Fed Funds rate at both the September and December meetings. The second quarter GDP report came in at 2.3% growth versus an expected 2.5%. The big surprise was the revision in first quarter GDP from negative 0.2% to positive 0.6%. This revision reinforces that U.S. growth continues to be moderate.

Stock and bond prices continue to be range-bound, and I expect this to continue through August. The biggest price moves continue to be in commodities as prices remain under pressure due to the stronger dollar, supply concerns, and the questions surrounding the Chinese economy.

I regularly hold roundtable meetings with our Penn Mutual associates, and at last week's meeting I was asked to comment on suggestions for personal investments in these market conditions. My advice is to follow the two "D"s -- Diversification and Discipline. I have been quoted before as saying "diversification is the cheapest form of risk management." I believe this to be very true for individuals as well as for institutions.

  • Diversification. Develop a strategy that is appropriate for you, then select a diversified set of funds with different managers and styles to achieve those objectives.
  • Discipline. Don't try and chase returns but develop a long-term plan to accomplish your goals. Be disciplined in rebalancing your portfolio on a regular schedule. Don't let the short-term performance of one sector -- good or bad -- change your strategy.

The broader equity market has exhibited strong performance over the past few years, and it has been a long time since the market had a correction. If you haven't looked at your holdings, this would be a good time to reevaluate your goals and make changes that are appropriate for you.

Tags: Monday Morning O'Malley | Diversification | Market | Federal Reserve | Commodity prices | GDP

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