Feds Cuts Rates, Investors Unhappy

The investors are disappointed Wednesday when the Federal Reserve trimmed its Fed rates by a quarter-point pointing out “muted inflationary pressures” and “the implications of global developments” as the main reason. This cut will bolster the economy from effects of President Trump’s trade war against China but this recent event brought unhappy faces from the investors and is evidenced by the market results after the close.

Dow Jones Industrial Average or DJIA is down 26864, -1.2% or 334 points down while S&P 500 index or SPX is lower by 34 points from 3,014 to 2,980 by the close. NASDAQ Composite or COMP also lost 98 points or 1.2%. DJIA’s -1.2% triple-digit loss is by far the biggest one day fall since May 31.

But this may not be the single driving force of the market…

Market driving forces:

Fed Cut Rates

During the press conference, Fed chair Jerome Powell said that this is a “mid-cycle adjustment” as “trade tensions seem to be having a significant effect on the economy” and the “global manufacturing slowdown is a bigger factor than expected last year”. While the investors are expecting a .25% in the fed rate, they expected more than that figure or at least an announcement that there will be more cuts later one. This mid-cycle adjustment instead of a start of monetary easing cycle disappointed them even more.

According to Seth Carpenter, “The FOMC statement does not suggest a Committee committed to additional cuts,” and “On balance, the Fed has stood down from high alert.”

Mike Loewengart, vice president of investment strategy at E*Trade said, “I think the biggest surprise here is what is not being said: There is nothing in the statement about growth cooling here at home, and there is not a whole lot to suggest another rate cut is coming down the pike,”

“The threat of a recession has historically been the main catalyst for monetary easing, but today we’re seeing a Fed hanging its hat solely on inflation and the global economy. So those two factors will be closely watched by all for the balance of the summer.”

Trade Talks

Last night, Trade Secretary Robert Lighthizer and Treasury Secretary Steven Mnuchin, met with Chinese delegates  including Vice Premier Liu He Wednesday afternoon in Shanghai and it ended up somewhat positive showing few signs of progress but still not substantive enough to know what will the final outcome be. They plan to meet again on September with Washington as theor next preferred location.

2nd Quarter Earnings

APPLE is up by 2.04%, the highest in nine months dismissing the slide in Iphone sales, reporting a much better 2nd quarter earnings and great outlook for the upcoming months before the close of the financial year.

GE however is down by -.67% despite taking higher nots for the months to come and beating its earning estimates.

According to Factset, 76% of the S&P 500 companies who have reported their earnings posted a higher than forcasted quarterly profits. As of yesterday, more than 60% of the S&P 500 companies have reported their 2nd quarter earnings.

US Economic Data

According to Econoday, Moodys analytics showed an estimate of private-sector job growth of 156,000 in July, roughly a little higher than the 155,000 estimate by the economists. The unemplyment however, while it is .3% lower than the start of the year, it went up by .1% from last month. Here is the graph from Trading Economics:

source: tradingeconomics.com