So, What’s Next?
Rate Decrease/Earnings/China Deal/New Market Highs?
The stock and bond markets have been “banking” on our Federal Reserve lowering interest rates at their upcoming meeting on July 30th and 31st. Last week, the anticipation was for a .50 rate decrease, however after last Friday’s stronger than expected Jobs Report showing the US economy added 224,000 jobs, the market is now thinking .25. Not that the market actually thinks by the way!
The Fed has 4 meetings remaining in 2019: July 30-31st, September 17-18th, October 29-30th, and December 10-11th. First of all, it’s a bit hard to believe the year is already half way in the rear view mirror!
I think the Fed has backed themselves into a corner by having to cut rates in July. Perhaps the Fed did in fact increase a little too much in 2018, which I believe to be true. The reason the Fed is considering a rate decrease is low inflation, slowing Global Growth, and the current on-going trade issue. Still a bit hard for me to believe with 1st Quarter GDP @ 3.1%, an unemployment rate of 3.7% and seeing the money people are actually spending. Does the Fed now know something we are missing? As always, time will tell!
Earnings Season/China Deal
It’s early to start discussing Corporate Earnings; however it’s worth paying attention as many companies have signaled a projected decrease in profits for the 2nd quarter. Much of the decrease is being attributed to the on-going trade war. This is most likely one of the main reasons the Federal Reserve is considering lowering rates. My initial concern about the China Trade War was that I never thought it would end quickly, and I still believe it will be on-going.
Each time the stock market has a negative week or two that is attributed to the trade war, we hear information suggesting negotiations are improving, and the market moves back up! Most likely, earnings will be somewhat negative for the 2nd quarter, however with a rate decrease and positive comments about Trade, the markets should hold up for now.
What if we do get a China Deal and then Corporate Profits and Global Growth again start to accelerate? Will the Fed stop lowering rates or will the Fed do a 180 and start talking about increasing rates?
Market’s Last Week
US Stock indexes all finished in the black, with the Dow up 1.21%, the Nasdaq Composite 1.94%, the S&P 500 rising 1.69% and the Russell 2000 .58%.
Bond yields remain near historic lows as the US 10 Year Treasury yield finished last Friday at 2.04%. If you’re either looking to purchase a home with a mortgage or looking to refinance, rates are very attractive to say the least. We can only hope that as borrowing mortgage money becomes cheaper again, that we’ll see a pickup in residential real estate because that has the ability to increase the length of this economic cycle in a positive manner.
I typically do not pay attention to much of the election talk this early in the process, however it’s challenging because there are so many people throwing their hats into the ring this time and discussing increasing taxation in one way or another.
How about discussing our current fiscal situation, including our National Debt, Social Security, Medicare and Medicaid in a way that determines what is actually necessary to get all of this under control? Neither party has this concern in my opinion! No, we just talk about how to raise additional funds via taxation for additional new spending programs. I am very concerned that at some point in the future, our debt situation will become completely out of control causing an economic meltdown. When you examine the math, its head scratching!
From a discussed “Millionaire’s” tax, to higher income & capital gains taxes, increasing Estate Taxation, eliminating the stepped up basis rule, taxing stock and bond transactions, increasing Corporate Tax Rates, eliminating the “Stretch IRA” and I’m sure many other ways to increase revenue for additional spending.
Question of the Week…
This week features the 2019 Major League All-Star Game, so here’s the question!…
1964 All-Star Game was the most recent All-Star Game to end in what way?
- Walk-Off Home Run
- Player caught stealing
- Triple Play
Answer to last week’s question…!
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.
The answer is # 5! All of the above!