3 things Wall St. and Main St. learned this week
The time has nearly arrived to see if the U.S. economy can walk on its own, as the Federal Reserve starts to withdraw the monetary crutches it has used to keep the recovery moving forward ever since the financial crisis. Here are three key takeaways from economic developments this week:
1. Borrowing costs are going up, so plan accordingly
It won't happen overnight, but interest rates are heading higher, with the Fed on Wednesday signaling it would embark on a course of raising interest rates for the first time since 2006.
While average Americans will eventually see higher rates on credit card debt, car loans and mortgages, the good news is savers will see increased yields. As JJ Kinahan, chief market strategist at TD Ameritrade, told CBS MoneyWatch: "Your day-to-day life is very influenced by interest rates, whether you know it or not."
2. The dollar's rise, pros and cons
For Americans longing to climb the Eiffel Tower or explore the Greek Isles, now is the time to do it.
The dollar's move higher also affects dollar-priced commodities and is part of what has been keeping a lid on the price of oil, and as a result, energy costs. "Commodity movements are going to be a function of where the dollar goes. If the dollar is strong, prices go down -- it's that direct," said Jim Russell, portfolio manager at Bahl & Gaynor.
That said, the U.S. currency's climb is not helpful for U.S. multinationals trying to sell stuff overseas, something investors might want to keep in mind, given roughly 40 percent of S&P 500 (SPX) profits are made overseas.
The greenback's strength against the currencies of major U.S. trading partners has public companies such as athletic-wear maker Nike (NKE) warning that its current-quarter results would face currency headwinds. The scenario hasn't yet pulled the plug on a six-year bull market, but the U.S. stock market in recent sessions has been taking its cues from the U.S. dollar, and responding by going in the opposite direction.
3. The labor market is the economy's bright spot, but other indicators not so much
Employers added 295,000 nonfarm jobs in February, and the U.S. unemployment rate fell to 5.5 percent. Wages, however, remained stagnant. That's likely a factor in consumer sentiment, with an initial reading for confidence in March falling to a four-month low.
While the labor market is "cranking," other indicators are not, said Phil Orlando, equity market strategist at Federated Investors, which recently revised its estimate of first-quarter economic growth to 2.3 percent, down from 3 percent.
The winter weather is among the headwinds hindering the economy, said Orlando, pointing to the impact of frigid temperatures in much of the country on retail sales, which fell 0.6 percent in February, according to the Commerce Department.
"The economic data is certainly not supportive of 3 percent-plus GDP growth, and retail sales fit into that," said Paul Nolte, senior vice president and portfolio manager at Kingsview Asset Management.