The US Stock Market Is Caught In A ‘Cycle of Uncertainty’

The US Stock Market Is Caught In A ‘Cycle of Uncertainty’

$DIA, $SPY, $QQQ, $VXX

Former US Treasury Secretary Larry Summers says the last thing the US economy needs right now is higher interest rates while wages continue to stagnate amid uneven growth.

“We are caught in a vicious cycle. Incomes are too low, therefore investments are too low. We need to get out of that cycle,” he said Thursday. He called on lawmakers to implement tax reform and rules to discourage the kind of activism that strips cash out of companies.

And, in the absence of inflationary pressure, the Fed should be in no rush to increase interest rates for the 1st time in 9 years.

“Even looking out 10 years, markets are expecting little more than 1 percent inflation on the index the Fed uses for inflation,” he said. “You should kick up interest rates, as has been true forever, when you have an inflation problem.”

The Fed wants to see inflation increase hit its 2% target.

“In the face of a ‘low-flation problem,’ there is no reason to raise rates,” said Mr. Summers, who served as Treasury sSecretary under Bill Clinton.

After months of speculation and delay, the chances the US Fed raises interest rates this year are only 60%, according to Goldman Sachs chief US economist Jan Hatzius.

Among the biggest concerns is that the stock market and commodities market have only assigned a roughly 30% chance of a hike this year. Some argue that alone is enough to delay.

Fed Governor Daniel Tarullo, who votes on rate decisions, said last week he doesn’t currently favor an interest rate hike in 2015 after several officials, including Fed Bank of New York President William C. Dudley,  signaled the central bank would still increase rates this year as long as the economy stays on track.

This Fed discord and jawboning the issue causes market uncertainty and volatility.

The Bulls were running Thursday: DJIA +320.55 at 17489.16, NAS 100 +79.93 at 4920.05, S&P 500 +33.57 at 2052.51

Volume: trade was above average with over 1-B/shares exchanging hands on the NYSE

• NAS 100 +3.9% YTD
• S&P 500 -0.3% YTD
• DJIA -1.9% YTD
• Russell 2000 -4.1% YTD

Stay tuned…

HeffX-LTN

Paul Ebeling

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