U.S. Stocks Rebound after an Early Rout

U.S. stocks rebounded this afternoon after a lower opening this morning that was fueled by a weaker than anticipated jobs report. The Dow Jones reversed what started as a 258 point loss and finished the day up 200 points. The S&P 500 erased a 1.6% loss and finished higher for the 4th straight day after a 2.6% rout on Monday that left the gauge at its lowest level since August 25th. The index is coming off its worse quarter since 2011, which was primarily caused by concerns that China’s economy is cooling down and the concern that this may have spillover effects in the global economy.

The U.S. added 142,000 jobs in September and the number of jobs created in July and August were revised down. The average economist estimate was for an increase of 204,000. The unemployment rate remained unchanged at 5.1%, which is the lowest it has been in 7 years.

The disappointing jobs data did send a shock through currency markets and the bond markets as traders signaled that a Federal Funds hike is less likely to occur in 2015.

Futures traders rolled back their expectations of a 2015 rate hike as the probability that the Fed rate hike will occur this year dropped to 34% from 46% just before the jobs data was released and from almost 60% a month ago. The Fed has two more policy meetings in 2015 with the next rate decision set for October 28, followed by an announcement on December 16.

The original goal of the Yellen led Federal Open Market Committee (FOMC) was to be more transparent and to make decisions that are market neutral. Unfortunately, Yellen and the crew have done almost the exact opposite as market makers have become fixated on when they will pull the trigger. Although the exact timing of the liftoff has caused immense speculation, the more important data is the trajectory of eventual increases. Over the past few months many FOMC members have lowered their long term guidance on future rate increases. The long term rate target will continue to fluctuate as new data emerges, but it is important to note (as we have done in previous emails) that we have a long way to go before Fed fund rate increases should have a negative effect on U.S. equities. We just need them to get out of the way and let the market focus on earnings and fundamentals.

“New” Chip Technology in Credit Cards

Identity theft has long been a concern when it comes to using credit and debit cards. Over 31 million U.S. consumers were victims of having their credit card information stolen in 2014. However, the world’s largest credit card providers are making great strides through the use of chip technology. Companies, like MasterCard and Visa, are exclusively releasing new cards with chip technology. Already a success in Europe for several years, this shift has stopped counterfeit use of cards by more than fifty percent. These new cards with chips write a unique code for every transaction and hold the cardholders information within the chip. While this technology will help protect consumers in face-to-face transactions, the chip does not offer any greater protection in online shopping.

The physical nature of the card will not look or feel much different. You can locate the chip on the left side of the front of the card. The main difference will come when checking out at stores. Conventionally, you would swipe your card for transactions. With chip technology, you insert the chip end of the card into the reader. It will take just a few seconds longer, but most will agree that it is worth the financial protection. Stores are required by the major card providers to carry new card readers that are compatible with standard and chip technology. If stores failed to upgrade their networks by October 1st, then they will be liable for any fraudulent activity instead of the card providers. Gas stations have until 2017 to upgrade their readers at gas pumps.

Credit card companies expect cardholder’s full transition to chip cards to take a few years, but note that 40% of current cardholders already have chip technology. Current cardholders may be able to request a new card with chip technology depending on the provider and bank. This may be very useful if you plan to travel out of the country. Ultimately, the next time you acquire a new card, be sure to request chip technology for protection that traditional cards cannot provide.


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