Though the Fed held interest rates steady at its June meeting, more dovish language and a wider variation in its dot plot seemed to add a layer of haze regarding future policy moves.
Fed leaves rates unchanged but hints at future cuts
Market barely changed in wake of Fed statement, Powell conference
Futures market now shows 100% odds of a rate cut at next Fed meeting
1: LONG RATES DRIFTING LOWER. The 10-year Treasury
(TNX) fell this week to its lowest level since November 2016. Data source: Cboe Global
Markets. Chart source: The
thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past
performance does not guarantee future results.
About Those IPOs… It’s been a full spring for the Initial Public Offering (IPO) market, and so far the mixed performance of these former “unicorn” and now publicly-traded stocks roughly compares to the broader market. The clamor around these IPOs reflects the public’s big interest in new companies, and some of the fresh faces have scampered to huge early gains. However, there’s also a healthy bit of skepticism in the market, and it’s possible certain companies might have gotten a little ahead of themselves when it comes to stock price. In general, investors have mostly seemed to learn their lessons after the internet bubble of the early 2000s burst, and as most seasoned market watchers understand, nothing goes in a straight line up forever. That’s why it could be prudent to use a bit of caution trading these new stocks, and not go all in at once.
That said, the internet bubble was 20 years ago, so if you’re a 30-year old investor, you were 10 back then and probably not following Wall Street too closely (unless you were a pretty atypical kid). Sometimes a new generation has to learn old lessons, hopefully not the hard way.
How Times Have Changed: Talk of lowering rates seems a little surprising if you stand back and look at the overall economy. Sure, as we said above, U.S. GDP growth does appear to be slowing and earnings growth is also flat to lower. Some overseas economies are shaky. Still, a lot of other signals point to continued strength, at least here in the U.S. The consumer continues to be a pretty positive factor, as we saw with last week’s retail sales report. Job growth has been strong, despite a recent fall-off from really surging growth earlier in the year, and unemployment is still at 50-year lows.
That’s very different from how things were the last time the Fed cut rates on Dec. 16, 2008. At that point, unemployment was surging toward an ultimate high above 10%, the economy was bleeding hundreds of thousands of jobs a month, and crude oil prices had collapsed from above $145 a barrel in July to under $40 a barrel by December. That Fed easing took interest rates to effectively zero, where they stayed for seven years until December 2015. Since then, the Fed raised rates nine times under previous Chair Janet Yellen and current Chair Powell, back to levels previously seen in early 2008.
Focusing on Fundamentals: At times like these when trade-related headlines often move the market sharply one way or another (as we saw Tuesday), investors might want to consider staying focused on more of the fundamental economic factors and try not to get diverted too much by the latest events. Day-to-day news is still driving things in a major way. That can create big moves, and it punctuates the need to be careful and try to stick with your long-term goals and plans.We’re back near all-time highs and it’s nearly mid-year, so it might be a good time to examine your portfolio and see if it’s become more heavily weighted to stocks than planned. A rally can do that. We’re also getting close to earnings season, and earnings are the backbone of the market. Tariffs and trade wars might come and go, but earnings probably play a bigger role in the long run.
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