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Fed: Don’t Expect Rate Cuts
If nothing else, I took one thing away from this week’s Fed decision: don’t expect rate cuts anytime soon. The market had priced in a 25 bps rate increase – with the Fed flagging it well in advance. And the Fed didn’t disappoint. But what they were hoping for was more of “dovish hike” It wasn’t coming… Powell is keeping things tight-lip. And he has good reason to… he (like the market) simply doesn’t know what lies ahead. And whilst things appear to be trending in the right direction – it’s far too premature to call a victory over unwanted inflation
Are Recession Callers Back-peddling?
It’s the rally everyone loves to hate. Why? Because very few got it right. Most fund managers missed this rally entirely… thinking it was only a matter of time before things collapsed. The thing is – they haven’t. I will admit – I also got this wrong. My initial target at the start of the year was 4200. If that broke – I was looking at resistance around 4500. The S&P 500 now trades 4536 – making me look foolish (and it won’t be the last time I am sure). We’re now just past the mid-point of the year – with the S&P 500 up 18.2% YTD. Remarkable by any measure. What are Wall St saying about the second half?
Can Consumers Continue to ‘Shop ’til they Drop’?
Never underestimate the US consumer’s willingness to spend. And from mine, that’s been the story of this year. Consumers have used whatever means available to spend, spend, spend. With ~70% of US GDP consumption based – that has also meant the economy managed to keep its head above water. But what does it look like going forward?Do consumers still have ultra-strong balance sheets to keep it up? And are rates eventually going to bite? I ask this because if US consumers are closer to maxing out their credit cards (with more than $1T in debt)… the odds of a recession sharply increase.
What Banking Crisis?
Are things actually looking up? If your measure is the equity market… you would say absolutely. Stocks continue to charge higher on the back of lower inflation and optimism the Fed is closer to the end of its hiking cycle. What’s not to like? However, there’s something else giving markets a boost. Easy money! Financial conditions are as easy as they’ve been all year. For example, it was only 4 months ago and we had a mini banking crisis… where funding was a lot tighter. That’s now a distant memory.