the shutdown finally a thing of the past
, the bottleneck on economic data was lifted last week and
investors started to receive some important clues on where the
U.S. economy is heading as the year ends.
As I write in
my new weekly commentary
, the long-delayed and
mixed September jobs report
was consistent with my view that the labor market is stuck in a
slow growth mode. And outside of the jobs market, other measures
of economic activity -- such as
orders for durable goods
a sales forecast cut from construction equipment
company Caterpillar Inc.
-- pointed toward slow growth as well.
The basic takeaway from the data seems to be that we're still
in a world of 2% U.S. economic growth with little evidence of a
pickup, partly thanks to the recent government shutdown's impact
on business and consumer confidence. In other words, while the
U.S. economy isn't falling off a cliff, it also doesn't appear to
Yet this news doesn't appear to be bothering investors, and
stock markets have advanced despite the mediocre economic data.
Why the optimism?
It probably comes down to the fact that investors now expect a
more benign Federal Reserve (Fed). Investors are lowering their
expectations for growth, but at the same time, they're pushing
back expectations for Fed tapering and an initial hike in
short-term rates. In short, they now expect a "lower-for-longer"
policy from the Fed.
This change in expectations can be seen in economist forecasts
for both growth and rates. For the first time since last May,
analysts are modestly lowering their outlook for where long-term
rates will be in three to six months.
So what are the investing implications? There are two main
. Rates are likely to remain range bound for the remainder of the
year, or at least until economic data starts to surprise to the
Further stock market gains are predicated on a
continuation of a "
" environment of modest growth and an accommodative
While a more benign rate environment is good news for stocks,
equities will have to manage a delicate balancing act. If the
economy stalls further, earnings estimates will need to be
sharply reduced, probably hurting stocks. Meanwhile, if the
economy begins to accelerate, we're likely to see some pressure
on stocks as investors once again reverse their rate
Russ Koesterich, CFA,
is the Chief Investment Strategist for BlackRock and
iShares Chief Global Investment Strategist. He is
a regular contributor to
and you can find more of his posts
Sources: Bloomberg, BlackRock Weekly Investment