July 16 (Reuters) – The Federal Reserve is watching job
creation, but investors will be better off keeping a wary eye on
profits and bond yields.
Yields have risen in the past two months, while corporate
profits may be on the slide, both of which should undercut job
growth and exercise a powerful influence over the Fed’s next
While the evidence from the first week of corporate profit
reporting season is mixed, profits and margins look to have
weakened in the second quarter as companies struggle with lower
spending by governments and a difficult environment of falling
At the same time, evidence of an improving jobs picture, as
well as dovish statements (now partly taken back) from the Fed
have convinced markets that they are on a path towards ‘normal’
interest rates. In other words, higher rates.
Benchmark 10-year Treasury yields rose by more than a
percentage point from early May to early July, topping out above