The Fed, the Fed and the Fed
The Standard and Poor’s 500 Stock Index is approximately 2% from again reaching its all time high! Global economic growth has been slowing, the China Tariff issue does NOT appear to have any resolution coming in the short-term, Corporate America is at least temporarily becoming a bit more cautious with expansion plans and hiring. So why are the markets, again melting up towards new highs?! It’s rather simple. The Fed!
I’m sure you recall during the early stages of this recovery, “Don’t Fight the Federal Reserve”. The Fed pumped in massive dollars into our economy, pushed interest rates down to historic lows. This was in an effort to rescue the global economy from the 2008 Mortgage and Economic crisis. Did it work….?? Most certainly yes!!
Looking back, most of us were skeptical of what the Fed was doing. However, if you fought the Fed and did not invest in risk-based assets, you were left behind. Even the previous “Bond King, Bill Gross”, formerly of Pimco, discounted how far the Fed would go to save our economy.
I can’t help but being a little confused…. Approximately early October of 2018, Jerome Powell suggested the Fed was going to continue to raise rates, perhaps even beyond neutral. After the markets plunged over 13% on the news, he changed gears, saying the Fed is on hold indefinitely. So what changed between October and year-end. In my opinion, nothing other than because of his comments, year-end values were much lower. His early October 2018 comments were obviously inappropriate.
The Federal Reserve meets this Tuesday and Wednesday and many believe the Fed will either lower rates this week or at the next Fed meeting. The market has priced in a few rate cuts between now and early next year. The big question I have, is a rate cut appropriate at this time? The unemployment rate is at an all-time low, and GDP has been very positive for a while now! So is this a little insurance for the markets or is Jerome Powell admitting he has made a big mistake late last year and wants to rectify his actions?
If the Fed does not reduce rates this week or at the next meeting, I believe the markets will correct downwards… unless perhaps the China issue is resolved, or at least has been patched with a band aide. So for the time being, I think it’s again appropriate to not fight the Fed!
For how long this time? As always, time will tell!
Markets Last Week
The markets were a little boring last week. The Dow, S&P 500 and the Russell 2000 moved north approximately .50%. The Nasdaq Composite was the leader, increasing .70%. Over the pond, the EAFE lost (.26%), however the Emerging Market Index was up .90%.
Bonds according to the Barclay’s Bond Index increased a mere .02% which is just fine by me.
What can we expect going forward? No predictions by this advisor. We in unchartered territory however with Interest rates staying low, low unemployment, people spending money I suggest holding the steering wheel straight for now!
Question of the Week…
What was the all-time highest Federal Funds Rate?
Answer to last week’s question…!
Smart Phones! In 2018, 1.56 billion Smart Phones were sold worldwide. Which of the following 3 companies had the highest number of shipments holding a 20.9% market share?
The correct answer is #3 – Samsung. Apple was #2…. which is a surprise to many!