Week of August 3, 2015
Most major markets rebounded last week as turmoil in Greece and China, and weak reports from earlier in earnings season, became distant memories. Additionally, weak wage growth and slower than expected GDP expansion added to the speculation that the Federal Reserve would leave rates untouched in September, and perhaps through the remainder of 2015. The S&P 500 gained 1.2%. The Dow Jones Industrial Average rose 0.7%. And, the Nasdaq Composite gained 0.8%.
Wage Growth Staggers
On Friday, the Labor Department reported that the employment-cost index, which measures wages and benefits, rose a seasonally-adjusted 0.2% during the second quarter. This is the slowest pace of expansion in nearly three decades and reverses momentum earlier in the year where it grew 0.7% during the first quarter. Year-over-year, the index is up just 2% in the quarter after rising 2.6% in the first quarter. That was the fastest pace of annual growth since the financial crisis. Stubborn wage growth has been one of the puzzling aspects of the recent economic recovery. The question remains: will this slower wage growth change the Federal Reserve’s plans to raise rates in 2015?
Investors Turn Pessimistic
Data provider, Markit, released information this past week showing that short interest, or investors betting stocks will go down, rose to one of its highest level in more than 30 months. More than 2.4% of shares for S&P 500 are on loan for negative bets. The move coincides with increased volatility and a pullback in prices throughout most of June. Not surprisingly, the energy sector has the most bearish bets with more than 4.5% of shares being shorted.
Fun Story of the Week
Parents of children to who refuse to eat their vegetables (or do anything else they are asked to do) received some good news this week. The Developmental Psychology journal published data from a study of 745 children that researcher tracked between 1968 and 2008. The study attempted to connect an array of childhood characteristics to career outcomes later in life. The study found unsurprisingly that IQ, socioeconomic status of parents and conscientiousness measured by teacher assessments were pretty good predictors of success later in life. What is interesting, though, is when those factors are accounted for, the single best predictor of higher incomes later in life is “rule breaking and defiance of parental authority.” Researchers admit the findings might be a fluke, but they offer the theory that childhood troublemakers may out earn their obedient classmates because they are more willing to stand up for themselves and thus more demanding during salary negotiations.
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Wall Street Journal, July 2015 (subscription required), http://www.wsj.com/articles/u-s-employment-costs-rise-0-2-in-second-quarter-1438345911
USA Today, July 2015, https://www.usatoday.com/story/money/personalfinance/2015/07/31/wages-grew-q2-slowest-pace-27-years/30927287/
Wall Street Journal, July 2015 (subscription required), http://www.wsj.com/articles/short-bets-on-sharesreach-a-high-point-1438390420
Quartz, July 2015, https://qz.com/460267/rebellious-kids-grow-up-to-out-earn-rule-followers/