Behind Stock Selloff And Yield Rise, Hints At Consumer Impact?

Stock gains – they yield for yield gains.

Might consumer spending yield amid those gains, too?

The selloff seen Thursday in stocks traded here in the United States show a bit of pullback from recent highs. But they also come on the heels of a government bonds selloff.

As had been widely reported and as The Wall Street Journal reported that day, the Standard and Poor’s 500 stock index, which is broad-based in terms of industries represented, sold off more than 80 basis points. At the same time, the yield on U.S. Treasury notes stand at the highest level seen in more than seven years. (To recap: when bonds and notes sell off, their yields rise.)

The yield on the 10-year Treasury note now stands at 3.2 percent. The yield on the longer-dated 30-year note is 3.37 percent.

The backdrop is one where rising yields portend, possibly, more rate increases from the Federal Reserve. The Fed just boosted rates by a quarter point last week, and it should be noted that even at a Fed funds rate of 2.25 percent (this is the rate charged as banks lend to one another), rates are coming off of historic lows.

But it seems that more rate increases are in the offing, with telltale signs that consumers are likely to start to feel the pinch — sooner rather than later.

Want to add fuel to that fire? Factor in the jobs report from Friday morning. The Labor Department’s monthly jobs data showed a revision to last month’s data, and a boost in wages, which in turn implies that inflation will grow — which hints at more rate increases. The headline data as pertains to the jobs report showed 134,000 jobs created. That was below the 185,000 expected. But then again, the August data was ratcheted up from 201,000 non-farm payroll positions added to 270,000. And so the current unemployment level now stands at 3.7 percent, which is the lowest percentage seen in almost half a century.

Looking at wages, the average earned hourly tally was up 8 cents in the latest reading and as an annualized gain wages are on pace to be up around 2.8 percent.

Call it a full employment scenario. The fact that wages are moving higher — and employers of course want to keep employees happy and on staff — means that eventually prices increase. That means, of course, that inflation eats into pocketbooks. The Fed, at the same time, wants to tamp down inflation, which means rates go higher.

The Fed has boosted rates eight times since 2015 and consumers really have yet to pull back on any throttles. The prime rate influences rates charged on borrowings from credit cards to any number of other variable rate loans.

Those companies that look toward international consumers to take up any slack (i.e., say from China or Europe) have to grapple with the fact, too, that the dollar is stronger — which means that cross-border purchasing power is relatively lower.

The Journal noted in its own comparison of yields and stock markets, rendered globally, that, for example, Indian and Indonesian currencies are at multi-year lows against the dollar.

As a trend writ, at least for and in the U.S., strength is a trend that is a friend — until overheating burns many.