- With two dissents, the FOMC cut the fed funds rate -25bp today. This does not have to be the start of a “long” series of rate cuts according to Fed Chair Powell, but some additional action is still possible.
- Lower neutral interest rate assessments, global risk, and still-too-low U.S. inflation were mentioned as key factors for cutting rates today, despite the recent stronger-than-expected GDP and jobs reports. The statement included: “[i]n light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent … uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion …” (emphasis added).
- Presidents Rosengren (Boston) and George (Kansas City) dissented in favor of no rate cut at this meeting. But some upside surprises in the recent U.S. macro data were not enough to sway other committee members. Insurance against downside risk (weak global growth & trade tensions) matters, even with a data-dependent outlook.
- The Fed ended balance-sheet runoff two months early, which is an intellectually consistent move with today’s interest rate cut (no need to tighten & ease in the same month).
- In his press conference, Chair Powell noted that uncertainty over U.S. policy had particularly mattered to the economy in recent quarters. Confidence matters. Powell called this a “mid-cycle” policy adjustment. Bubbles / risk to financial stability were not considered a reason to hold rates today.
- The liquidity-driven equity market has support from today’s Fed decision, but more will likely be needed to validate the level of easing markets had been assuming.
- As we’ve mentioned previously, U.S. corporate profits have been flat-lining (which is especially evident after the recent GDP revisions). There remains risk, as profits lead business spending (capex + employment). Cushioning this risk is an area rate cuts can help. Fortunately, U.S. job growth has remained adequate for now (eg, ADP’s report of +156,000 m/m private jobs in July).
- The issue for policymakers remains doing enough to offset the current slowing, particularly in mfg (we’re watching the U.S. mfg PMI reading closely tomorrow). The Chicago PMI fell sharply into contraction territory in July. The U.S. 3m/10yr yield curve also remains at -6 BP and the 2yr/10yr curve is +13 BP. If the Fed cuts enough in coming months to un-invert the 3m/10yr curve, the message from the 2yr/10yr metric is that economic growth can resume. But there’s more work to do. One of the key reasons financial conditions have eased recently is the expectation of additional Fed (and other central bank) cuts.
Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!
Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017 Five Star Wealth Managers!
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client?s experience or of the Firm?s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:
The Barron's award is is based on the recognized adviser's assets under management, contribution to the firm's revenues and profits, and quality of practice. Investment performance is not an explicit criteria. Additional information about this award is available at http://online.barrons.com/report/top-financial-advisors.
Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.
Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.
Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.