A market priced for perfection will start to wilt when investors realize things aren't particularly perfect.» Read More
The central bank printed $4.5 trillion and all we got was a lousy 0.2 percent wage increase.
While that sounds like a T-shirt for policy geeks that one might buy at the shore, it actually pretty accurately describes the plight of the average American worker. After years of easing never seen before in global central banking history, the Federal Reserve's efforts have amounted to little when it comes to stimulating "good" inflation, particularly in terms of wage increases.
The employment cost index, an otherwise secondary data point that suddenly has taken on more importance, painted a bleak picture for workers in its latest update Friday.
On a quarterly basis, it showed wages and salaries increasing just 0.2 percent, believed to be the lowest three-month move ever for a data set that goes back to 1982. That translated to a 2 percent annualized gain in compensation costs, according to the Bureau of Labor Statistics.
What's more, the scant growth went mostly to government workers, who saw a 0.6 percent increase, while the private sector was flat. On a 12-month basis, private worker compensation rose just 1.9 percent, which actually was a slight decrease from the 2.0 percent at the same time in 2014. Wages and salaries alone grew 2.1 percent, which actually was an increase from the 1.8 percent a year ago.
Investors hungry for clues about when the Federal Reserve is going to raise rates are looking for, well, anything.
That crowd includes one bond expert who has honed in on the word "some."
Yes, just four letters that make up one decidedly indefinite pronoun, contained in the Federal Open Market Committee's seemingly innocuous post-meeting statement Wednesday, could provide a key as to when the U.S. central bank finally will begin what should be a painstakingly slow exit from zero interest rates.
"By inserting the word 'some' before 'further improvement in the labor market' in the part of the FOMC statement that describes conditions needed for liftoff, the Fed effectively lowered the bar," Hans Mikkelsen, credit strategist at Bank of America Merrill Lynch, said in an analysis for clients. "While this is a hawkish tilt, clearly the subsequent rally in stocks and decline in interest rates suggest that the market expected—or should we say feared—more explicit language preparing for liftoff."
Mikkelsen filed his note Wednesday as stocks indeed were in rally mode. Market sentiment cooled somewhat Thursday as traders weighed what to make of the Fed statement against more news of an economy that has yet to find anything more than mediocre growth despite nearly seven years of supposedly stimulative monetary policy.
Gross domestic product grew 2.3 percent in the second quarter, according to the advance reading of the number released Thursday, while first-quarter growth was revised up but remained at an anemic 0.6 percent.
Investors can't be faulted for trying to figure out when and how quickly the Federal Reserve is going to move on interest rates.
Some of the recent speculation, though, seems to have gotten at least a bit overdone.
Recent chatter has gone so far as to suggest the Fed may only hike by 10 basis points, or 0.10 percentage points, in its first move after keeping its key rate near zero for the past nine years. In a CNBC.com report Monday, ANZ senior foreign exchange analyst Khoon Goh said the futures market actually has priced in such a move for September.
Forget what history says: In what has become the silly season for Fed speculation, everything seems to be on the table.
"Some ... go so far as to predict that the Fed will raise short-term rates by as little as 10 (basis points). Should such a small move occur, however, it would be the first one in history," Sam Stovall, U.S. equity strategist at S&P Capital IQ, said in a note. "It's never happened in the 179 rate moves since 1934."
As yet another key debt payment date closes in on Puerto Rico, here's a primer on what you should know, and who it will affect the most ahead of the deadline.
Q: If the Puerto Rico Public Finance Corporation (PFC) doesn't pay bondholders on Aug. 1, will it be considered a default?
A: Yes. According to Moody's vice president and senior credit officer, Ted Hampton, if there is no payment made on Friday, it will be the first default of a U.S. state, or state-like entity, since Arkansas couldn't make its bond payments during the Great Depression in 1933.
Q: What should Puerto Rico's bondholders do?
A: The outlook for Puerto Rico bondholders is rather bleak, said Nick Venditti, a portfolio manager at Thornburg Investment Management.
"If you're an investor in a heavily overweighted Puerto Rico municipal bond mutual fund, or have direct exposure to Puerto Rico's debt, your best-case scenario is to sell right now," Venditti said. "You won't be able to get a better dollar value return on your Puerto Rico investment than what it's trading at right now."
Q: How much money is due on Friday?
A: Puerto Rico's Public Finance Corporation, a subsidiary of the U.S. territory's Government Development Bank, owes bondholders $58 million. Puerto Rico will likely default on this payment due to PFC's failure to transfer $93.7 million on July 15 to the bond trustee.
The nonappropriation of the $93.7 million caused Standard & Poor's to lower its rating on PFC's bonds, saying it sees "default for this debt … as a virtual certainty." The rating agency also placed all other Puerto Rico tax-backed debt on its CreditWatch with negative implications.
Read MoreWhy US may not help Puerto Rico
On Monday, Victor Suarez, chief of staff to Gov. Alejandro Garcia Padilla, reiterated that the commonwealth didn't have the cash flow to pay the principal and interest on the PFC bonds.
Some other payments are also due on Friday, including $140 million owed by the Government Development Bank.
Investors have watched with interest as stock market indexes this year have set several new highs.
The latest record to fall, though, is for not doing much of anything at all.
On Thursday, the Dow Jones industrial average swung to a negative year-to-date return, the 21st such time it has moved to either side of breakeven for 2015. No other year has been so fickle, the closest being the 20 times the blue chip index swung in both 1934 and 1994, according to research compiled by Bespoke Investment Group. The Dow was off more than 1 percent for the year as of Friday.
That the Dow has topped the mark with more than four months of trading to go exemplifies a lack of conviction that stretches back to November, even though the index has posted multiple record highs during the period.
"That should catch us by surprise not at all," said Art Hogan, chief market strategist at Wunderlich Securities, of the new record. "To trade sideways for November to date, you would have to spend a lot of time on either side of the line. We tend to get stuck in a range, and lo and behold there we are."
For the broad market indexes, 2015 has been a bumpy road to nowhere, highlighted by the continuing Greek debt crisis, an economic slowdown and bear market in China, and anxiety over when the Federal Reserve will start raising interest rates.
Those headwinds have given folks plenty of reason to run, and investors have ripped cash out of U.S. equity funds to the tune of $106.8 billion year to date, according to Bank of America Merrill Lynch and EPFR.
Think about the Chinese economy and stock market as basically being a fun-house mirror view of its American counterparts.
Debt-driven economy? Check. Central bank and government stimulus aimed at goosing the stock market? Check. Highly leverage-driven growth in that stock market? Check.
True, China and the U.S. have key differences. China's gross domestic product gains have dwarfed what's happened in America. Equity values represent a much higher proportion of U.S. wealth. And, of course, domestic stocks are not in free fall like they are in China.
Yet, consider this kernel of China analysis recently published by Citigroup's economic team:
While China's data suggests growth stabilization, policymakers' demonstrated aversion to volatility across many assets could propagate moral hazard, delay price adjustment, lead to prolonged resource misallocation and build-up of future risks.
Substitute "U.S." for "China" in that sentence and the analysis still applies pretty well.
In fact, when critiquing the Federal Reserve's response to the financial crisis in 2008, many economists cite those very potential pitfalls: Asset misallocation due to focus on liquidity and stock market gains; the moral hazard that comes from an overreliance on policy stimulus; and problems with price discovery due to the effects unnaturally low interest rates have had on the post-crisis corporate earnings cycle.
China's stock market selloff is unlikely to slow the Fed's path to rate hikes, unless it creates an economic slowdown or deflationary spiral that slams the global economy.
The Fed begins its two-day meeting Tuesday, but economists mostly expect little news from the U.S. central bank when it releases its statement Wednesday afternoon. The majority of economists forecast the Fed will raise rates for the first time in September, unless the economic data soften significantly or there is some other shock to the system—and China could potentially create a shock.
"Financial stability matters. If there's a huge mess and fallout from China that's destabilizing when they go to raise rates, they'll have to postpone it," said Mesirow Financial's chief economist, Diane Swonk.
The active versus passive debate just got a new wrinkle, and one analyst thinks he knows why.
Exchange-traded funds, which are the primary vehicle for passive management, now have assets under management greater than hedge funds, according to a count from research firm ETFGI. ETFs primarily follow market indexes, while hedge funds use a mix of strategies to beat those same benchmarks.
Tim Edwards, senior director of index investment strategy at S&P Dow Jones Indices, set up an experiment that put a blend of low-cost ETFs against their more expensive hedge fund brethren.
What he found essentially was that his effort to mimic hedge fund strategy using indexes—half focused on international stocks, the other half on bonds—easily beat out a popular gauge of hedge industry overall performance, the HFRI Fund Weighted Composite Index. However, the results changed when he factored in the fees.
A near 42-year low in an economic reading as essential as weekly jobless claims is always going to get lots of investor attention.
This time, though, it should probably get a little less.
While the Department of Labor said there were "no special factors" causing the number to fall to its lowest level since Nov. 24, 1973, Wall Street experts disputed that notion. Economists believe multiple factors converged to provide such an unusually low reading.
"In July auto companies typically shut down facilities as they do some maintenance, and seasonal adjustments usually take this into account," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note. "But if there is any shift by the auto companies in what they do, it can mess around with the seasonals. Thus, I don't want to read too much into the data."
Americans are not spending much of the money they're saving at the pump.
Some benefit in home prices and employment have come to areas with long commutes, but effects on retail spending have been "more ambiguous," according to an analysis from Goldman Sachs economists.
"Our view has been that the boost to real incomes from lower energy prices—and its positive impact on consumer spending—would offset the drag from energy-related investment, resulting in gains for US GDP growth on net," Hui Shan and Zach Pandl said in their report. "While consumer spending has picked up since Q1, results for the year so far have fallen short of our expectations."
Indeed, retail spending has been disappointing despite expectations for a rejuvenated U.S. economy boosted by the decline in oil prices. Crude tumbled 55 percent and gasoline dropped 42 percent from June 2014 to January 2015. The decline in both has abated since then, but prices at the pump are still 30 percent lower than they were a year ago, according to AAA.
Omega joined the growing chorus of investors blaming last week's selloff on trading strategies pioneered by funds like Bridgewater.
Based on historical stock valuations, the Nobel Prize winner told CNBC it's a "risky time."
U.S. stock index futures indicated a higher open on Thursday, building on Wednesday's rally.