The big news this quarter happened near the end of the quarter in mid June.
Near the end of 2018 the FOMC, led by chairman Jerome Powell, were on record to increase rates three additional times after their late in the year .25% increase. Capital markets threw a gigantic hissy fit. Fast forward a mere six months later, Powell lead FOMC are no longer interested in raising rates and maybe even considering lowering rates, a possibility virtually no one thought probable late last year.
Capital market participants have a way of making their feelings known – it does appear that the hissy fit late 2018 was in response to too fast of a rate increase. While we may never know for sure, post Powell chairman negation of further rate increases, and possible future lowering of rates were met with capital market participant applause.
We still feel there is a lot of ground to cover before an actual rate lowering may occur, and with market participants pricing in an expectation of late July lowering of rates, certainly there’s a possibility of disappointment.
For the moment it appears that interest rates will not go higher, and will at the least stay where they are for the foreseeable future and maybe even go lower from the current 2.25% to 2.5% threshold.
Tariffs and the Slowing Global Economies
The lack of a tariff agreement has put, for obvious reasons, many company managers in a holding position. Combine this with some global waning of growth, and we have a slight macro slowdown.
Global slowdowns are normal, and should not be feared. Major downturn‘s are the crux of problems and are what the FOMC seem to be most fearful of above.
With earnings being the ultimate driver of capital markets, a slowdown would take the wind out of the sails of levitating markets
Inverted Yield Curve Update
The recent deeper and more prolonged inverted yield curve, not hugely inverted but definitely inverted may be signaling a recession to come. In our Q3 2019 newsletter we dig very deep into multiple charts and update our thoughts once again on the inverted yield curve. The bottom line with an inverted yield curve is no one knows when the eventual recession may occur.
While the investment skies are rarely sunny and blue, there are some overcast unknowns at this time. Sunny skies can happen very quickly with agreements and progress from different parts of the world.
We are conservatively positive, and look forward to how all of the cross currents play out in the next few quarters. Needless to say this is not a time to swing for the fences in investment portfolios, we would argue it’s never the time to swing for the investment fences.
Have a great summer will talk to you in early fall!
John A. Kvale CFA, CFP