Uncertainty = Volatility

(answer: "rock stars")

Financial markets have their lenses trained on the US Federal Reserve for the next moves on interest rates and the Fed has just had a bit of data that flies in the face of their expectations.

As I repeat (ad nauseum) often enough, especially when it comes to the monthly US employment data: one month's data does not necessarily imply a trend (especially when the revisions to previous months data can be considerable).

However, the wide variance from the expectations: +38,000 new jobs vs. the expected 160,000 is considerable and will certainly leave the Fed waiting to see what happens next.

Their mandate is to acheive price stability and full employment:

Inflation remains below target and employmnet growth is slowing.

As for the trend: yearly job growth continues to follow the down-trend that began well over a year ago:

The Fed wants to "normalize" interest rates, but if they do (raise them) it means recession will likely follow soon there after, so now they are uncertain as what, if anything that they can do.

Corporate profitability growth has been negative for 4 consecutive quarters and is expected to show up again in Q2 2016. Therein lies the answer to the employment issue: companies need to cut costs to get profitable. The first to go will be expensive employees (it may already be happening).

That won't be good for a consumer (no longer employed) with a high debt load.

More uncertainty:

The UK referendum on whether to stay in the European Union (aka Brexit) is less than 3 weeks away and it is going to be close:

And how about these guys becoming friends?

The US presidential election is drawing closer and so are the poles:

Friends, cash is a defensive (albeit temporary) asset for uncertain times, you will likely want to have more of it in your portfolio for the next little while.

Thank you for all the great feedback, please keep it coming (and their is no such thing as a "stupid" question):

scott@highrockcapital.ca

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bianca@highrockcapital.ca