This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Rates Will Rise as Labor Market 'Slack' Outweighed by Stability

Stocks in this article: XLU TLT JNK DVY UUP IAT

After previous recessions, the labor market has been quick to rebound higher. Since 2010, however, our economy has improved at a more gradual pace. Nonetheless, improvement warrants an increase in short-term rates from its current rock-bottom levels.

The chart below represents the effective federal funds rate controlled by the Fed. Changes in the Fed funds rate closely mirrors changes in the labor market indicator above.

Just before the financial crisis a few years ago, the labor market and Fed funds rate were both on an upswing together. In the post-crisis environment, however, the rate has been slashed to historic lows, allowing time for employment to recover.

Although the employment situation is in no way "spectacular," it is as good as it has been in the last five years. This alone should give the Fed confidence to begin gradually raising rates as labor conditions continue to stabilize.

READ MORE: 10 Stocks Carl Icahn Loves in 2014

If rates do hike in 2015, it will present great opportunities to get both short and long various assets. On the short side Utilities Select Sector SPDR (XLU), iShares Barclays 20+ Year Treas Bond (TLT), SPDR Barclays High Yield Bond (JNK), and iShares Dow Jones Select Dividend Index (DVY), which are all interest rate sensitive, should fall as rates improve.

Meanwhile, PowerShares DB US Dollar Index Bullish (UUP) and iShares Dow Jones US Regional Banks (IAT), which benefit from higher interest rates, should catch a bid higher.

Economic activity is not robust by historic standards, but it is strong enough to expect policy tightening and prepare your portfolio for the aftershocks.

At the time of publication, the author had no position in any of the funds mentioned.

Follow @macroinsights

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs