Fed Rate Hike Locked and Loaded

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Wide swings in markets over short time periods illustrate the need to stay invested in equities through difficult periods.

In its latest meeting the Fed declared that the slowdown in activity seen in the first quarter is “transitory”. Indeed. The nonfarm payrolls report showed that a much higher than expected 211,000 jobs were added to the U.S. economy in April. The unemployment rate inched down to 4.4% and the comprehensive U-6 measure of all unemployed, discouraged and marginally attached workers moved down to 8.6%. This report almost guarantees an interest rate hike in June. In fact, the implied probability of a hike in June soared from 67.1% on Tuesday to 93.8% on Thursday to 100% today. However, all eyes will be on the French elections this weekend. Pro euro candidate Emmanuel Macron is significantly ahead in the polls but if Marine LePen, the anti-Eurozone or “Frexit” candidate, manages to win there will be rampant uncertainty. Markets will react accordingly with a selloff in Europe that will likely extend to U.S. investors running for the exit. This is not a likely occurrence but risk does not always make an appointment and show up when expected. As always, global diversification helps smooth the bumps along the way. Please see page 25 of the Global Perspectives™ book and note that missing just the 30 best days of the stock market over the last 50 years resulted in 40% less return.

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