Will it Continue?
Part of the bullishness that has happened in October has been because of the Fed. We expect this week, that the Fed will make a third consecutive rate cut. We expect the cut to be more of an insurance cut because of what the Fed is seeing right now which is a deceleration in domestic demand, weaker wage pressures, and declining inflation expectations. The Fed is looking at these things and thinking that it’s suggesting economic weakness globally and so, as a result, we expect them to cut this week. It will also be very important to see what they say going forward. The market will react more to their words than to the actual cut. It will be very interesting to see if they continue to cut rates more this year or if they push it back to the middle of next year.
The market is pricing right now at a 50-basis point cut and the 3-month T-Bill is sitting at 1.63%. So, if there’s a cut, it will take it down to about 1%. The Fed, after this next cut, won’t have much room to move. The market seems to be focusing on what the Fed is going to do this month and will all be decided by the end of this week. It all comes down to this. We have had a great couple of weeks but if the Fed disappoints or says something unexpected, we could give all the gains back. In addition to that, manufacturing is down around 5.5% year-over-year. There’s a lot of worry about the China trade war, the European markets and the global economy slowing down. The U.S. unemployment is minuscule 3.5%. The retail sales report shows a rise of 4%. The U.S. GDP, despite a global trade war and the Fed cutting rates because of weakening and wages, is still expected to grow 1.3%. There’s no telling where we would be without this trade war.
Manufacturing is down 5.4%. However, manufacturing is only 11% of our economy and 8.5% of the wage growth. It’s nothing like it used to be and if you go back to the end of the financial crisis in 2008-2009, the U.S. economy has grown 20% since then and 17% of that growth has been in service. Only 3% has been in manufacturing. It’s not what it used to be as an indicator.
One thing that hasn’t been on the radar lately because of the Fed and China is Brexit. It’s made its way back into the news. The UK, earlier this month, asked for an extension of leaving the European Union. As a result, 27 ambassadors met in Brussels and decided that they would grant the extension. Not only are they going to grant that extension, but they pushed it out to January 31, 2020. Now we’re looking at it from a trading standpoint with the prime minister and our administration. We will watch to see how that will work itself out. Heading into 2020 we might see a different kind of element than we would have seen if it happened before 2020.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
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