The trading pattern at the end of summer is characterized by low volume with muted volatility and generally a dearth of meaningful information for investors to evaluate. This summer has not been an exception. Over the last few weeks, like most investors, we have been focused on the Federal Reserve. Last week, the release of the Fed’s minutes from their July meeting were overly dissected for indications of the next rate hike. This week, everyone is focused on Fed Chair Janet Yellen’s Jackson Hole speech. The truth is that the Fed is on a slow, cautious path to raising rates and the hyper focus on every Fed officials’ comment is just noise. We can expect the market to react when the Fed meaningfully adjusts policy. When the taper of QE was announced at the end of 2013, the 10-year Treasury yield spiked to 3% and the Dow Jones index dropped 6% the next quarter. Today, the Fed is constrained by global risks. Valuations in both fixed income and equity markets have been elevated as central banks have purchased bonds and artificially lowered rates across the global markets. With equity valuations toward the top of their historic range, earnings growth is necessary to drive markets higher.
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