Imports are way, way up

Kai Ryssdal (0:02)

On the program today, we'll talk about the markets, stock, and labor both, the corporate rebrand, and the Wall Street bull. From American Public Media, this is Marketplace.

In Los Angeles, I'm Kyle Rizdall. It is Tuesday, today, the 15th day of September. Good as it always is. Have you along, everybody.

You know, one of the realities of the Kevin Warsh-led Federal Reserve is that we kind of don't really know what the central bank is going to do when it wraps up its two-day meeting tomorrow, lack of forward guidance at all. But just because we don't know doesn't mean Wall Street doesn't have an expectation, a 90-plus-percent expectation, that Warsh et al. will raise their benchmark interest rate by a quarter of a percentage point. So money will get more expensive. That of course will trickle out through the economy. And in that way that capitalism works is going to make its way back to Wall Street. Marketplace's Mitchell Harman gets us going.

Mitchell Hartman (1:13)

So what could happen the day after or even the afternoon after the Fed hikes its benchmark interest rate?

Bill Mears (1:20)

We probably shouldn't expect a large and immediate impact of a rate hike on stocks since it's already priced in.

Mitchell Hartman (1:25)

Bill Mears at US Bank Asset Management says capital markets have been anticipating higher rates for a while. And once the Fed starts, it's not usually one and done.

Bill Mears (1:35)

There's a limit to what a single rate hike can do. Markets are already pricing in three to four rate hikes by next summer.

Mitchell Hartman (1:42)

It's an open question how much rate hikes might drag on business investment and consumer spending, which are key drivers of corporate profits and stock prices. But up till now, they've held up strongly.

Bill Mears (1:54)

S&P 500 earnings, they're expected to grow about 31% this year and about 14% next year.

Mitchell Hartman (2:00)

Jan Groen, chief economist at Societe Generale, has an altogether less sanguine view of what's coming.

Jan Groen (2:07)

I mean, it's definitely not pricing to stocks. So we'll see what's going to happen tomorrow.

Mitchell Hartman (2:12)

Groen says with a new Fed chair who hasn't established his credibility yet and shuns forward guidance about interest rates.

Jan Groen (2:19)

The market is just not really believing the Fed that they really have the willingness to go all the way.

Mitchell Hartman (2:25)

He thinks investors will eventually get the message, with stock prices taking a hit later this year when he predicts inflation will still be high, inducing the Fed to hike rates again.

Equity analyst Jeffrey Roach at LPL Financial has looked at the last 30 years of Fed rate hiking. What he's found mirrors something a former Fed chair once said.

Jeffrey Roach (2:45)

About taking away the punch bowl.

Mitchell Hartman (2:47)

The punch in the bowl is low interest rates, the lubricating beverage that brings investors to the stock buying party. When rates go up, you get the punch bowl taken away, you complain for a little bit, then after a while you just move on. Historically, stocks tend to fall for a few months, but 12 months after that, they're back in the black as companies and consumers adjust to higher rates. I'm Mitchell Hartman for Marketplace.

Kai Ryssdal (3:11)

Well, speaking of which, Wall Street today stocks down, bonds up, yields that is, oil up as well, details numbers when we get there.

Most of the time when we talk about the American labor force, we talk about it in the aggregate, the overall unemployment rate, the total number of new jobs created. You get it, right? The US workforce, though, is not a monolith. 170-ish million people in different categories, in different places with vastly different occupations. And it turns out that half of that labor force right now, the half or so without college degrees, is having a very different year than the other half. Gad Levinan wrote about it the other day. He's the chief economist at the Burning Glass Institute. Welcome to the program.

Gad Levinan (4:17)

Thanks for having me.

Kai Ryssdal (4:18)

You have written, and we have all heard, and we've reported on this program, that it's been a tough year for recent college graduates. Tell me, though, about this other half of which you write.

Gad Levinan (4:30)

Yeah, the other half, which is mostly people without a bachelor degree, are actually having a pretty good year.

Their unemployment rate is unusually low compared to their history. So, that's a very good development for them.

Kai Ryssdal (4:48)

It is indeed. Why is it happening?

Gad Levinan (4:51)

I think there are several reasons. One is that over time, fewer and fewer people at that age group do not have a bachelor degree.