Rate Cuts Appear to be Coming Soon!
Upcoming Corporate Earnings Season!
The Federal Open Market Committee meeting certainly did NOT disappoint the markets. 7 of the 17 Members indicated rate cuts of 50 basis points by year end. The stock and bond markets have this “baked in the cake”, so any change to reducing rates could be a big negative for stocks and bonds, although I believe chances of that are fairly slim.
Rate cuts at this stage of the cycle are not common, especially with economic data still in positive territory. GDP in 2018 was 3%, increasing to 3.1% in first quarter 2019. We have unemployment sitting near a 50-year low and interest rates at rock bottom. The Fed apparently desires to place some insurance into the economy as some data has actually weakened. Last week, the Empire State Manufacturing Survey reported a negative 8.6 far below the expected positive 10 reading. This is the first negative in 3 years; however this certainly may be attributable to our Tariff situation with China.
Corporate Earnings Lurking Around the Corner
Next month, we’ll hear earnings reports. Some in the press are suggesting that earnings will be flattish without any improvement, which flies in the face of our Stock market. The question I’ve been pondering is: what if we do get a new Trade agreement with China? What will that mean to the Federal Reserve’s intention of reducing rates? Many believe the upcoming slowdown in Corporate Earnings growth is attributable to the tariff situation and Corporate CEO’s becoming a bit cautious until they can see more clarity in the situation. So if the China issue moves to the rear view mirror (which I question anyway), does that mean the Fed may AGAIN change gears?
And if so, what will be the impact? As always, time will tell!
Last Week’s Market Action
All boats rose last week, with the Dow Jones increasing 2.41%, the S&P 500 2.22% and the Russell 2000 up 1.8%.
Over the pond, the MSCI EAFE International Index rose 2.22% and as expected the Emerging Market Stock Index led the way, rising 3.84%, mostly attributable to the US dollar losing value with our expected upcoming rate decreases.
Bonds moved higher in value with the Barclay’s Aggregate Bond Index up .44%.
Oil moved up last week mostly because of the Iran situation. WTI was up 7.88%… that’s a WOW! My question, how can it be a mistake to shoot down a drone? What should our reaction be to the drone shooting and the attacks on Oil Tankers? I simply don’t know enough about foreign policy to make an educated opinion, as I cannot relate to their thinking.
Question of the Week…
Which of the following are true regarding Oil?
- Oil is equal to 42 US gallons or 159 liters.
- Gasoline makes up 45% of crude oil.
- The US consumes more Oil than any other country.
- Oil is used to create medicine, recreational sports items and cosmetics.
- All of the Above.
Answer to last week’s question…!
What was the all-time highest Federal Funds Rate?
The answer is # 2!