When Doves Fly - March 25, 2019

Wednesday’s Fed meeting had four big takeaways. The Fed is projecting no rate hikes this year, down from two at the December meeting. And the Fed will end the runoff of its balance sheet in September, a little earlier than most had anticipated. The dovish tilt that began in January continues.

In addition, the Fed kept its key rate at 2.25-2.50% as expected. Finally, Fed Chief Jerome Powell says he expects “solid growth” this year, though the Fed downgraded the economic outlook.

While the Fed says it wants to maintain today’s rates, investors are trying to sniff out a rate cut this year amid the slowdown in the global economy and its possible impact at home.

Take a look at Figure 1. As of March 22, investors were pricing in more than a 50% chance of at least one rate cut this year and a 43.7% chance rates will remain unchanged.

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Navigating the Fed - March 20, 2019

The Federal Reserve’s meeting concludes Wednesday. Virtually no one sees a rate increase from the current fed funds rate of 2.25 -2.50%.

On the radar—

  • Language in the Fed’s statement
  • Projections for the fed funds rate at year end
  • The endgame for the balance sheet runoff

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Global Woes and Earnings - March 18, 2019

The U.S. economy was firing on all cylinders for much of 2018. The global economy started 2018 on an upbeat note but growth quickly began to moderate. This year, U.S economic growth has begun to moderate, and the global economy has downshifted into a low gear.

In part, it’s one reason Fed Chief Jerome Powell recently said he’s been seeing “some crosscurrents and conflicting signals.” It’s a big reason why the Fed is no hurry to raise interest rates right now.

We not only see it in the economic data, but also in the Q1 earnings outlook. Look at the graphic below. It is the forecast for first quarter profits for S&P 5003 companies broken into three categories.

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A Mixed Message - March 13, 2019

U.S. economic growth has moderated from Q2’s 4.4% annualized pace to 2.6% in the final quarter of 2018 (U.S. BEA).

While quirks in the data gathering process may be impacting some reports, various economic releases suggest growth has continued to slow in Q1.

  • Nonfarm payrolls grew by just 20,000 in February (U.S. BLS).
  • But the jobless rate fell to 3.8% from 4.0%.

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Happy Birthday - March 11, 2019

The bull market turned 10-years old on Saturday, March 9th. During the depth of the Great Recession, the S&P 500 Index touched a bottom of 676.53 on March 9, 2009 (St. Louis Federal Reserve). The Dow Jones Industrial Average bottomed the same day at 6,547.05. On Friday, the respective averages closed at 2,743.07 and 25,450.24 (MarketWatch).

Another way to view the decade’s progress: the total average annual return for the S&P 500 Index, including dividends reinvested, came to 17.5% per year. The same metric for the Dow has been 17.4% per year (through 3/7/19, S&P Dow Jones Indices).

The graphic below compares the current bull market with the five longest bull runs since WWII.

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