Fed Rate Cut Ambiguity

Screen Shot 2019-07-31 at 2.26.30 PM

The Federal Reserve cut their interest rate target yesterday by a quarter point, and the stock market fell about 1%.  The cut was expected over the last couple weeks, and the market seemed excited about it, but now that it has happened, it feels like no one is satisfied.

Such is the ambiguity that comes with watching what the market does on a daily basis.

After a sour end to 2018, investment performance has been way up in 2019 (+19.5% S&P500).  The turnaround happened early as the Fed promised no more interest rate hikes this year and no more than one in 2020.  That was enough to quell concerns that had resulted in a inverted bond yield back in March.

Now with a rate cut, perhaps people are suddenly concerned that the Fed is viewing the global economy and trade war as more serious than expected?  At least enough to cause the first cut in rates since 2008?  Or, were they hoping for an even bigger rate cut – or additional rate cut guidance for the future?

The stock market is a strangely emotional machine and I don’t think in the short-term it can be easily understood.  Even when the Fed does what Wall Street expects, the result can be the opposite of what one would think.  Better to be a buy-and-hold investor than to try to read anything in the everyday Wall Street ambiguity.

Have A Great Weekend!

3 thoughts on “Fed Rate Cut Ambiguity

  1. I believe the market had built in assumptions that several rate changes were already built in for the year, so I think we’re seeing a contraction reaction because the Fed is eluding to a more cautious approach by doing only a small change now and taking a cautious wait and see approach. Just my two cents.

    I agree with you, the best approach is still to ignore the chatter (mine included above!) and invest in indexes and look long haul. There is a possibility I may downshift my normal diversification allocations by 10% in a more dynamic defensive allocation approach given the high market PE level, but mainly due to the risk of SORR in my given my early retirement status (only 2.5 yrs into early retirement).

    Liked by 1 person

    1. The WSJ’s take on the drop is that Powell did not “more explicitly ratify expectations of additional stimulus in the mo the ahead.” I guess that means a small % of investors were hoping he was suggest a second cut might be on the horizon. If you think watching the market daily is overkill, the WSJ tracked the market minute by minute as he was speaking! Yikes.

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      1. Lol! I hardly ever watch the market these days. Life is too short. Rebalancing periodically is all we need, and an occasional small dynamic adjustment based on life changes or major PE shifts.

        On an unrelated fun note… We arrived in Nova Scotia yesterday! We’re on a 3-4 week trip up the East Coast. Started two weeks ago, and have stopped at West Point NY, Salem MA, Plymouth MA, Newport RI, Bar Harbor/Acaida MN, St. John NB, and now Halifax NS. What a beautiful road trip for the summer. Cheers!

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