The Latest Market Commentary From Our Strategists

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Daily Blog

Tuesday, July 16, 2019

Special Guest Blogger: Tim Kearney

It seems that the Federal Open Market Committee (FOMC) has shifted its monetary policy approach from data dependence to pre-emptive risk management. Last summer, Federal Reserve Chairman Powell appeared to endorse such an approach. His Congressional testimony last week emphasized that (headline) inflation is below the FOMC’s “symmetric 2% objective” and that “cross-currents” weigh on economic activity and the outlook. The question remains: will this approach deliver the three rate cuts by year-end that the market expects?

My expectation is that the FOMC will validate expectations for a 25 basis-point (bp) cut in July but not deliver 50 bp. The FOMC will remain open to a 25 bp cut in September, which likely will happen. I doubt that the Fed is on autopilot to cut based on market expectations. Between now and the December 11 meeting there will be a lot of data that should clear up the direction of economic cross-currents. These are the keys: investment trends, productivity data, nonfarm payrolls, business confidence and trade tensions. I would feel more confident about the outlook being above trend if we see business confidence remaining high among investment firms.

For background on the fed funds target rate, please see page 34 of the Global Perspectives book.

Weekly Commentary & Statistics

Monday, July 15, 2019

US stock markets set new record highs on sentiment that while the Federal is highly unlikely to tighten monetary policy over the short term, it may even lower rates in the coming months, if not sooner.

Quarterly Commentary & Outlook

July 2019

We unabashedly tout our 2019 theme, “The Storm before the Calm,” as it accurately unfolded in the markets in the first half. The storm in December was followed by a calm from January through April, which sent markets to near record highs.

  • In the first half of 2019 our market theme, “The Storm before the Calm,” has unfolded as we predicted
  • We originally anticipated a rising rate environment, however, this outlook has changed and is allowing for a rebound in fundamentals
  • Markets have been soaring, with the S&P 500 posting its best half-year gain since 1997
  • Corporate earnings may be the best indicator to follow as they continue to beat all-time highs
  • An apt metaphor for investors may be to take advantage of the blowing wind and go “full sail”

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