Lower interest rates, jobless claims, and other news affecting your money this week


After rising for a third straight week, the S&P 500 was just 0.6% below its last record — and then the weekend came.

Attacks on an oil processing facility and oil field in Saudi Arabia on Saturday caused oil prices to spike, as Saudi Arabia cut its oil output in half. While President Donald Trump said on Sunday that the U.S. would release oil, if needed, to keep the market well supplied, traders worry that higher oil prices could slow the global economy. And stock prices are falling Monday as a result.

Last week, the S&P 500 appeared poised to reach new highs as a reprieve from the trade war helped bolster optimism on Wall Street. President Trump last week delayed tariff increases on $250 billion worth of Chinese goods by two weeks, and he signaled he would consider an interim trade deal with China, even though it's not his preference. And on Friday came news that China reportedly will exempt some U.S. agricultural products, including soybeans and pork, from additional tariffs.

In addition to higher oil prices, some traders speculate there could be another reason the market might dip, at least in the near term. After the most recent Federal Reserve meeting, the S&P 500 fell 5.7% in four days, and there were similar declines of at least 1% in the days after earlier meetings. Another Fed meeting is planned for this week.

That meeting is the must-watch event on Wall Street this week. Traders expect that policymakers will cut interest rates for the second time this year amid signs of slower economic growth, and traders could push stock prices higher in response, though that didn't happen after the prior rate cut in July. In addition, traders will watch for any change in a weekly report of the number of Americans filing for unemployment benefits.

Here's what to watch, and how the news could affect your wallet:

Traders expect lower interest rates

What's happening: Central bankers convene for their sixth meeting this year on Tuesday and Wednesday. Professional investors anticipate the Fed will lower interest rates again, after it did so in July for the first time since 2008.

That said, Wall Street is less confident about this prediction than it was earlier this summer. The federal funds rate is currently set at 2%-2.25%, and traders currently project a rate cut with about 75% probability, down from 100% one month ago.

Why it matters: There's pressure on the Fed to lower interest rates, both from Wall Street and President Trump, amid signs of slower growth in the U.S. economy. But Fed Chairman Jerome Powell recently said the Fed isn't forecasting or expecting a recession, and one former central banker warned that Wall Street shouldn't assume a rate cut is coming this month. A surprise from the Fed on Wednesday could rattle the markets.

What it means for you: The Fed's goal in cutting interest rates is to stimulate economic activity by making it cheaper for consumers and businesses to borrow money. Homebuyers are taking advantage of lower interest rates — and the volume of mortgage applications is up 69% from one year ago, when interest rates were much higher.

Consider these smart money moves to make in the event of a rate cut, like targeting debt repayment and securing a higher rate for your savings.

Are more people out of work?

What's happening: The number of Americans filing applications for unemployment benefits fell to a five-month low, according to data released last week by the Labor Department. Economists expect that number ticked up for the report scheduled to be released on Thursday.

But last week there were some high-profile announcements of layoffs. Uber laid off 435 people, and that's after cutting more than 400 employees in July. Meanwhile, Charles Schwab laid off 600 workers, citing a slowing economy and pressure from falling interest rates.

Why it matters: Jobless claims, along with monthly hiring and unemployment figures, show the U.S. job market remains strong even if hiring has slowed. And this strength has helped to defy the hype on Wall Street in recent months that the U.S. economy could be headed for another recession.

What it means for you: Even if you're working full time, it can be helpful to monitor these kinds of indicators — like the number of people filing for jobless benefits — because they give you a sense of how businesses are faring. Generally, labor market trends remain positive, and Wall Street is watching for any sign of a shift.

Last week, for example, a report showed that optimism among small business owners fell to a five-month low in August. Small businesses employ a large share of the population, so if these owners cut back on hiring or shed workers, that has a broader economic impact. Still, a recession doesn't appear imminent, and even professional economists have trouble predicting recessions, so you're better off focusing on steps you can take now to recession-proof your life.

The bottom line

If the S&P 500 hits a new all-time high, it would be the 14th time in 2019. That'd be good news for investors in a year that's seen this benchmark index rise more than 20%.

But experts warn that, just as we've seen following recent Fed meetings, there could be some short-term bumpiness in the market in the weeks ahead. If that happens, it can be a good opportunity for long-term investors to buy stocks at lower prices. And no matter what happens in any given week, it's important to keep perspective and remain consistent with your investment strategy.

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