"No guts, no sense, no vision."
That's what President Trump tweeted on Wednesday about Federal Reserve Chair Jerome Powell and his colleagues on the U.S. central bank.
I've been covering politics and the markets since I was a daily newspaperman during Ronald Reagan's first term. I've never witnessed a president so brutally insult anyone in his own administration, especially someone who's his hand-picked appointee.
Welcome to the new normal. Below, I'll provide some guidance as to how investors should cope.
For months, Donald Trump has been lobbying for a reduction of interest rates down to zero or below. Yesterday, a divided Fed begrudgingly gave him a quarter point cut. Investors were mildly disappointed, with the main U.S. stock indices closing essentially flat.
U.S. stocks were poised to open lower Thursday morning, with stock index futures in the red in pre-market trading. Investors are still trying to digest the consequences of the Fed's decision and the Middle East drone attacks.
As expected by the consensus on Wall Street, the Fed cut the overnight rate by 25 basis points to a range of 1.75% to 2%. That's the second time this year the Fed has lowered rates, as "insurance" against a slowing economy.
Trump is clearly rattled by increasing signs that a recession is around the corner, hence his hectoring of the Fed. His invective toward Powell reminds me of a famous tabloid headline.
In 1975, President Gerald Ford gave a speech denying federal assistance to spare New York City from bankruptcy. The next day, the front page of the New York Daily News read: "FORD TO CITY: DROP DEAD."
I love a snappy newspaper headline. And that's a classic.
Trump is telling Powell to drop dead. The Fed meeting this week occurred a couple of days after Trump called Powell and the Fed "boneheads" (that's right, boneheads) for not easing more aggressively. However, in the face of the president's wrath, Jerome Powell has remained steadfast - and, in my view, prudent. An excessively dovish monetary stance could ignite inflation down the road.
At the conclusion of the Fed's two-day meeting yesterday, Powell told the press that the Fed could initiate a "sequence" of rate cuts if the economy significantly slows, but added that he doesn't expect that to happen soon. In other words, forget about another rate cut this year.
The Fed's mixed message yesterday initially fueled volatility across asset classes, with stocks, bonds, and currencies all gyrating before settling down.
| SEC Rule Change Greenlights "Marijuana Turbo Trading" Niche? | | | UNCOVERED: Little-known 47-year-old SEC rule could create massive, lightning-quick gains for early investors. On September 24th, we go live with a behind- the-scenes interview that will turn pot stock trading on its head. The unique "turbo" trades we've uncovered could hand you the keys to a $259,711 windfall by this time next year. Get the full details. | | | | |
Trade deal around the corner?
Trump asserted Wednesday that a trade deal between the U.S. and China could come soon, a prospect that would cheer investors.
Don't get your hopes up. China and the U.S. are expected to meet next month but if history is any guide, nothing will come of it except a bunch of empty platitudes.
I'm not alone in my skepticism. An increasing number of leaders on Wall Street and corporate America are throwing up their hands and belatedly accepting the fact that a trade deal before the 2020 election is highly unlikely.
The seemingly endless tariff fight has weighed on economic growth and corporate earnings. You should adjust to this reality. Chances are, neither the U.S. nor China will blink first.
That said, the major U.S. stock market indices are hovering near their record highs set in July. The "animal spirits" released by Trump's tax cuts and de-regulation continue to propel stocks higher. But Wall Street's optimism is waning. It'll take a new catalyst to propel stocks significantly higher - which is unlikely, given the increasing prevalence of recessionary signals.
Keep the Dramamine handy…
Oil prices dropped yesterday, following Saudi Arabia's assurances that its damaged oil processing facilities would soon get back online. The kingdom also went so far as to definitively blame Iran for last weekend's drone missile attacks that sent oil prices soaring.
Iran has denied involvement in the strikes, but Riyadh and Washington aren't buying it. The U.S. seeks to forge a coalition of European and Arab partners to deter Iran after the attack on Saudi Arabia. Such an international alliance, however, is improbable given the bridges that the White House has burned with erstwhile allies.
After concerns that the drone attacks left the Saudi kingdom permanently vulnerable, details of the limited nature of the damage started to emerge. Fears of an oil apocalypse have faded.
Read This Story: Is Global "Oilmegeddon" On the Way?
But don't put away the Dramamine just yet. Oil prices will continue to subject investors to dizzying ups and downs, as the supply-and-demand equation stays out of whack.
The following three-month chart for the per-barrel price of Brent North Sea crude and West Texas Intermediate (WTI) paints the picture (data as of Wednesday's close):
Source: U.S. Energy Information Administration
Despite oil's wild ride lately, long-term trends indicate that oil demand should pick up again and provide a sustainable tailwind for oil prices, especially in emerging markets as rising middle classes buy cars and other oil-guzzling amenities. That makes undervalued energy stocks shrewd plays now…if you have "the guts," as Trump might put it, to withstand extreme volatility along the way.
Why should non-energy investors care? It's because the energy and broader stock markets have moved roughly in tandem over the past 12 months or so, in large part because analysts interpret rising oil prices as a sign of overall economic health.
The price of oil swooned in the fourth quarter of 2018 as investors worried about slowing global growth and a persistent glut of crude. The stock market followed suit. In early 2019, stocks and crude simultaneously recovered.
Meanwhile, the widely expected recession could be particularly harsh. Interest rates already are low (although not low enough to suit President Trump) and the federal government is grappling with a massive budget deficit caused by tax cuts. The traditional tools to mitigate an economic slump are stretched thin.
During previous bouts of bad news, strong corporate earnings have calmed investor fears. That pillar of the bull market is now missing.
Buckle-up for prolonged volatility. Look, it doesn't matter whether you love or hate President Trump. Here's the upshot, and it applies to Democrats and Republicans alike: Chaos is the status quo.
Stay cautious. Rotate toward defensive sectors. No one fires a starter pistol to announce a correction. It just happens and stocks drop dead.
Questions or comments? Drop me a line: mailbag@investingdaily.com
John Persinos is the managing editor of Investing Daily.
Tidak ada komentar:
Posting Komentar