Home About Archives RSS Feed

@theMarket: Does the Fed Know Something We Don't?

By Bill Schmick
iBerkshires columnist
Sometimes too much good news can be interpreted badly. Take the U.S. central bank's about face on monetary policy late last year. That was good news and investors responded by bidding the stock market up by 20 percent. But this week we may have received even better news, or did we?
The Fed did more than met investors' expectation this week at the central bank's monthly Federal Open Market Committee meeting. Chairman Jerome Powell indicated that there would be no more interest rate hikes for the remainder of the year (after saying back in December that two rate hikes were on the table for 2019). There was even some discussion that a rate cut might be possible, if conditions merited such a move.
One would have thought that would send the markets flying, and they did, at least on Thursday. Friday, however, the opposite occurred. Granted, the reaction could simply be dismissed as a "sell on the news" moment or algos playing their daily games. If so, nothing more needs to be said. But I ask myself — why would Powell and the Fed be contemplating a rate cut?
The news startled some analysts and left them asking questions. Is the economy weaker than most suspect? Has the slow-down in the global economy infected the U.S. as well? Afterall, the Fed did lower their forecast for GDP growth this year from 2.3 percent to 2.1 percent, but it is still growing, or is it? 
As most economists know, the economy is getting a little long in the tooth; we call it a "late cycle" market. One of the reasons you might want to cut rates at this point would be if you expected the economy to slip into recession fairly soon. 
There is certainly a huge discrepancy between the Fed's forecast and that of the Trump administration. In his budget for 2020, Donald Trump is forecasting 3.2 percent GDP growth this year. Given his tweets about the Fed, that is understandable. He believes that the only problem with the economy is the Fed. He does not believe they are in touch with the market or understand things like trade wars and a strong dollar. Investors are hoping that he is right. Time will tell if the Fed knows more than we do.
In the meantime, stocks continue to climb. As I wrote last week, with the world's central banks in an easing mode, stocks are benefiting from all this monetary stimulus just like they have for the past decade. Investor sentiment continues to move higher as well with the latest readings indicating 53.9 percent of investors bullish — the highest level since Oct. 1, 2018. That is the fifth straight reading above 50 percent, which is usually a sign that some caution is called for in investing.
However, the percentage of bulls are still much lower than the 61.8 percent bullish level that was registered when the stock market hit record highs back in September of last year. As a contrarian indicator, sentiment is a useful tool, but only one in my bag of tricks.  Clearly, we have had a great run since the lows in December with hardly a pullback to speak of. We could easily decline a couple of percent at any time
As long as we held the 2,800 level, any sell-off would set us up to make a run at the 2,900 level on the S&P 500 Index. If that were the case, it would mean that we not only erased all of the losses of 2018 but would be looking at an almost double-digit return for the stock market year to date. That's quite impressive, given that we are not even in the second quarter of 2019 yet.
But I don't want to get ahead of myself.  Just be grateful you hung in there through the fourth quarter of last year, and by all means, ignore the noise and negativity. Stay invested.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Moon Looks to Bring Diverse Views to Council in Re-election Bid
New Williams Inn Opens on Spring Street
Greylock Thunder Softball Holds Tryouts for 2020 16U Travel Squad
Boys & Girls Club Announces Pebble Beach Golf Raffle
Williamstown's Kuster Qualifies for Olympic Trials
Youth Works Participants Honored in Pittsfield
Biz Briefs: Jacob's Pillow Founderís Property on the Market
Pittsfield Native Returns Home to Join Smith, Watson & Company
SVMC Welcomes New Doctor to SVMC General Surgery
Cultural Pittsfield This Week: Aug. 16-22

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.




@theMarket (299)
Independent Investor (407)
August 2019 (3)
August 2018 (4)
July 2019 (5)
June 2019 (8)
May 2019 (10)
April 2019 (7)
March 2019 (7)
February 2019 (6)
January 2019 (6)
December 2018 (4)
November 2018 (9)
October 2018 (5)
September 2018 (4)
Deficit Debt Ceiling Markets Stock Market Europe Taxes Jobs Japan Euro Oil Federal Reserve Bailout Debt Stimulus Commodities Fiscal Cliff Energy Congress Wall Street Currency Retirement Banks Rally Economy Recession Crisis Stocks Selloff Greece Pullback Metals Housing Interest Rates Election Europe
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Will We race to the Bottom?
@theMarket: Tariff Threat Unsettles Markets
The Independent Investor: Brexit: The Never-Ending Story
@theMarket: All Eyes on the Fed
The Independent Investor: Make Vietnam Great Again?
The Independent Investor: Paid Family & Medical Leave Overdue
@theMarket: Looking Ahead
The Independent Investor: Home Equity Can Pay for Long-Term Care
@theMarket: G-20 Weighs on Stocks
The Independent Investor: Reverse Mortgages