May’s Jobs Report – What You Need to Know

Written by: Ryan Bouchey 

May’s job report just came in MUCH stronger than anticipated with 280,000 jobs being created compared to estimates of 225,000. What does this mean for the economy and for your portfolio?

• The Federal Reserve may be more willing to raise interest rates by the end of 2015. While the U.S. economy appeared to be struggling over the past few weeks there was talk that the Federal Reserve may not even raise rates until 2016. Today’s strong jobs number may be the first indication in quite some time that the economy is continuing to pick up which may lead to a rise in rates.
• Interest rates are on the rise without the help of the Fed! The 10-year Treasury spiked today to 2.42 percent. Yields were all the way down at 1.7% back in January, and it wasn’t until April that they rose over 2%. In the past two months alone we’ve seen rates climb all the way to 2.42%. As many of you are aware – as rates rise bond prices go down which leads us to our next bullet point.
• Fixed income has been awfully volatile year to date. With the uncertainties in the economy as well as low yields, the bond market has been a tough asset class to navigate. It requires a balancing act of credit risk and interest rate risk variables to maintain a steady yield without taking on undue risk. It’s very possible that with this latest rise in interest rates you may be experiencing some depreciation in your bond allocation. It’s important to evaluate your fixed income portfolio to determine what the impact of rising rates may be. Low duration can help limit some of your interest rate risk but it may not give you much yield. Finding this balance is crucial to a well allocated bond portfolio.