Federal Reserve Chair Janet Yellen Gives Speech About US Economy

August 30, 2016

The S&P 500 ended negative after a volatile week of trading, keeping prices within the narrow trading range experienced over the past few weeks. Since the S&P 500 broke through the ceiling set back in May 2015, prices seem to have stalled as there has not been a definitive move up or down. Over the next few weeks we would like to see increasing volume accompanying increasing prices. This would signal that the momentum has officially shifted to a more positive outlook. The coming weeks should give some valuable insight about whether the S&P 500 will turn the old level of resistance into a level of support or if the markets pull back again and retreat into the sideways/downward trading pattern.

Markets became more cautions during the week as investors waited for Federal Reserve chair Janet Yellen to speak at the annual Economic Symposium in Jackson Hole, Wyoming.

Yellen stated the case for raising interest rates has strengthened recently, but there is still little guidance about the timing of such a decision. This was in line with what the markets expected, but other committee members hinted there may be rate hikes sooner rather than later.

The uncertainty surrounding the speeches on Friday helped illustrate how fragile the markets can be. The S&P 500 fell over 1% due to the fear of sooner than expected rate hikes, but pared some of the losses at the end of the day with the relief that rate hikes may still be in the distant future. Increasing rates could be a sign that the U.S. economy is showing strong growth and seems healthy, but many investors fear this could cause more harm than good in the equity markets. A tightening monetary policy would reduce liquidity in the financial markets, potentially pushing money from riskier assets to safe-haven assets.

While market trends and history are useful for study, there’s always more to investing than just the charts and trends. We need to be a little cautious about increasing global uncertainties and the election that is right around the corner.

Most importantly, as investors we need to stay committed to our long term financial goals. All the short term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.